2 Chip Stocks Poised to Do Well Even as the Chip Shortage Rages On

The global chip shortage rages on, and some predictions point to supply and demand not balancing out until 2023. For some chip stocks, though, the shortage of tech hardware and soaring prices hasn’t led to a windfall. Two stocks in the industry that have struggled this year are ACM Research ( NASDAQ:ACMR ) and Intel ( NASDAQ:INTC ). In this Motley Fool Live segment from “The 5” recorded Oct. 8 , Fool.com contributors Jason Hall, Jeremy Bowman, and Nicholas Rossolillo discuss why they still look like good investments for the long term. Should you invest $1,000 in Intel Corporation right now?

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Nicholas Rossolillo: what’s your favorite chip stock in the semiconductor sector?

Jason Hall: Jeremy, you want to hit this one?

Jeremy Bowman: Yeah, I’ll hit this one first. My pick is going to be ACM Research. It’s ticker ACM. I own a bit of the stock. I think this a pretty off-the-radar company for most people. It’s a manufacturer of semiconductor wafer cleaning machines.

Hall: Everybody has got one of those in their kitchen, Jeremy.

Bowman: Sure. [laughs] Right?

Hall: There we go. That’s awesome. Keep going. I love it when we get these are very esoteric companies like this. Keep going.

Bowman: These machines are about $2 million to $5 million, so Jason, you probably have a few of them in your garage. That’s something over there.

Hall: I have a very nice kitchen.

Bowman: [laughs] This is an essential tool or essential process for semiconductors. I’d look at it as a picks-and-shovels play in the industry. It’s an American company but they do their business in China, which is where a lot of the chip manufacturing takes place. I think they are more insulated from the stuff that’s, regulatory crackdown on those concerns going on in China. If you wanted some exposure to the Chinese market, but want the protection of a U.S. company, they can do that for you. They are growing pretty solidly. I think in the 25%-30% range. They’re also profitable, so they got the components of the growth stock. I’ll see if I can share the YCharts with you just to tell that story. Let’s pull this up.

Hall: There we go.

Bowman: Yeah, most recent quarter we got 30% revenue growth. Profit margin has been 12%, pretty solidly in the double-digits last year. Stock really took off early in the pandemic. Their customers are some of the biggest semiconductor manufacturers in China. I like the pick-and-shovels idea. I think the numbers are good, so I think it’s got a lot of things you want in most stocks. I also think chip prices are going up so that’s going to favor all the industry players and it’s going to increase demand, the shortage isn’t good, I guess, but the long-term, we need more chips. Demand is going up and this is top-of-the-line cleaning proprietary technology that they’re providing. I think demand for their services should increase as well.

Hall: I think people don’t realize, Jeremy, how incredibly complex semiconductor manufacturing is and how these facilities have to be as spotless as anything can possibly be to be able to develop. What’s the saying in the industry? It’s not rocket science, it’s harder. [laughs] It’s actually incredible.

Bowman: The defects we’re talking about, chips are small to begin with, and then these are taking care of defects that are nanometers, they’re measured and they’re infinitesimal.

Hall: It’s incredible. Nick, I’m going to go second here and let you bring it home last. This is one that’s not my favorite per se. But I think it’s just gotten to a point, guys, where I think Intel is undervalued and overlooked. In fairness, this is a company that’s gotten in their own way for a while. Tried with fits and starts to do things differently and nothing really ever worked. Let’s take Intel and put it in the bucket of what it is, so it’s fully integrated. This is a company, they’ve designed, they have […]

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