Supply shortages of semiconductors continue to disrupt the production plans of many prominent companies, including General Motors, which recently announced it would not be offering the heated seat option in many of its 2022 models to preserve its supply of semiconductors for more critical components.
The demand for semiconductors skyrocketed during the pandemic as consumers adapted to the new work-from-home system by purchasing products like computers and other electronic devices that contain microchips.
Automotive companies scaled back their purchases during the pandemic due to a lack of demand for automobiles, which put them at the back of the line behind other industries that continued to purchase semiconductors.
So, what is causing semiconductor supply shortages?
Well, in addition to the now-infamous supply bottlenecks, closures of Chinese ports that have affected worldwide maritime transportation, and lack of workers to transport the chips, natural disasters have also played a key role in the shortages.
Last year, there was a fire at a major supplier in Japan, brutal winter storms in Texas—home of Intel— and a drought in Taiwan. Semiconductor chips require copious amounts of water during production, so each and every one of these disasters had a direct effect on manufacturing.
Semiconductor companies have made significant investments in new manufacturing plants to keep up with demand, which has left investors with opportunities to profit.
There are higher profit margins across the industry as companies continue to operate at maximum capacity and the ability to raise prices.
And with increased production comes investment opportunities.
One stock in particular has caught our attention here at Money and Markets.
As semiconductor companies continue to increase production, they will need equipment to make semiconductors. One such company that stands to benefit is Nova Measuring Instruments.
Those of you who took our advice back in March already know it.
At the time, Nova was selling at under $90 a share, but as of this writing, Nova shares are over $130.
This gain has been spurred in part due to sales and earnings that beat analysts’ expectations.
Earlier this month, Nova earned an adjusted $1.16 a share on sales of $112.7 million in the September quarter. Analysts had expected Nova earnings of 92 cents a share on sales of $102.8 million.
Nova earnings have skyrocketed 104% on a year-over-year basis.
Producers require precision devices to produce the microchips, products that Nova provides.
In March, we wrote that we “expect the stock to outperform the broader market by three times in the next 12 months.”
And we continue to be optimistic about Nova’s prospects and continue to be “strongly bullish” about Nova in our Green Zone rating for the stock.
And, as Money and Markets research analyst Mathew Clark wrote in March, “NVMI is a different way to buy into the future growth of the semiconductor sector, and it should provide market-tripling gains in the coming months.”
And we still feel that way today.