The semiconductor industry is a major driver, enabler and indicator of technological progress. The developments in the space have a significant impact on the way we work, commute, communicate, entertain, defend and respond to our environment.

The emergence of products like health monitoring devices and home automation gadgets, and the increased automation on factory floors, automobiles and elsewhere have added a new dimension to the industry. Environmental concerns and the need for judicious use of resources have also opened up opportunities in the form of chips reducing power consumption and heat dissipation; capturing solar energy, creating more efficient lighting solutions and so forth.

Some Numbers

According to the Semiconductor Industry Association (SIA) global semiconductor sales in Jan 2017 were the highest ever recorded in the month in the last six years. Year-over-year sales growth was also the highest over the same time frame. It expects global semiconductor sales to grow 3.3% this year and 2.3% in 2018.

Major Drivers

The most significant drivers include cloud computing, big data and artificial intelligence that are increasing demand for servers and data centers exponentially. Medical, automotive and wireless infrastructure is also seeing fast growth. The industrial segment is relatively low key.

The PC market still consumes a large number of chips but its importance as a driver has lessened. Of the emerging technology categories, Internet of Things (IoT), ultra 4K HD TVs, wearables and smart home products are prominent.  

Top Picks from the Industry

Back-tested results show that stocks with a VGM Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) handily outperform other stocks. You can see the complete list of today’s Zacks #1 Rank  stocks here.

Here we have picked five such stocks with solid growth potential from the semiconductor space.

ON Semiconductor Corporation (ON Quick QuoteON - Free Report) : Headquartered in Phoenix, AZ, the company is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to precise power management functions found in portable electronics. Earnings per share (EPS) estimates for the current year increased 8.7% (10 cents) to $1.25 per share over the last 60 days.

·         Zacks Rank #1

·         VGM Score: A

·         Year-to-date Return : 19.2%

·         Last EPS Surprise: 39.1%

·         Average 4-quarter Surprise: 13.3%

·         Long term EPS Growth Estimate: 10%

ON Semiconductor Corporation Price and Consensus

Applied Optoelectronics Inc. (AAOI Quick QuoteAAOI - Free Report) : Headquartered in Sugar Land, TX, the company designs, develops and manufactures advanced optical devices, packaged optical components, optical subsystems, laser transmitters and fiber optic transceivers. Current year EPS estimates surged 76.4% ($1.36) to $3.14 over the last 60 days.

·         Zacks Rank #1

·         VGM Score: A

·         Year-to-date Return : 102.1%

·         Last EPS Surprise: 6.9%

·         Average 4-quarter Surprise: 116.5%

·         Long term EPS Growth Estimate: 18.3%                      

Applied Optoelectronics, Inc. Price and Consensus

Broadcom Limited (AVGO Quick QuoteAVGO - Free Report) : Headquartered in Singapore, the company is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. Over the last 60 days, its fiscal 2017 EPS estimates jumped 6.7% (81 cents) to $12.91 per share.

·         Zacks Rank #1

·         VGM Score: B

·         Year-to-date Return : 27.8%

·         Last EPS Surprise: 5.6%

·         Average 4-quarter Surprise: 6%

·         Long term EPS Growth Estimate: 13.6%

Broadcom Limited Price and Consensus

Applied Materials, Inc. (AMAT Quick QuoteAMAT - Free Report) : Santa Clara, CA-based Applied Materials develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Over the last 60 days, current year EPS estimates increased 8.7% (20 cents) to $2.62 per share.

·         Zacks Rank #2

·         VGM Score: B

·         Year-to-date Return : 20.6%

·         Last EPS Surprise: 1.5%

·         Average 4-quarter Surprise: 3.9%

·         Long term EPS Growth Estimate: 15.5%

Applied Materials, Inc. Price and Consensus

Micron Technology, Inc. (MU Quick QuoteMU - Free Report) : Boise, ID-based Micron is a leading worldwide provider of semiconductor memory solutions. Current year EPS estimates increased 29.4% (53 cents) to $2.33 per share over the last 60 days.

·         Zacks Rank #1

·         VGM Score: A

·         Year-to-date Return : 19%

·         Last EPS Surprise: 16.7%

·         Average 4-quarter Surprise: 34.6%

·         Long term EPS Growth Estimate: 10%

Micron Technology, Inc. Price and Consensus

More Stock News: 8 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.

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