The electronics sector is experiencing robust growth driven by several key factors. Technological advancements, particularly in consumer electronics, are a major catalyst, with innovations in smartphones, the emergence of 3G and 4G technologies, smart wearables, and smart home devices significantly boosting demand. According to Grand View Research, the global consumer electronics market is projected to experience significant growth, expanding from $1,068.22 billion in 2022 to $1,619.04 billion by 2030, with a compound annual growth rate of 6.6%.
Additionally, rising income levels, especially in emerging markets, are fueling demand, as more households can afford electronic devices. The expansion of the IoT ecosystem presents new opportunities within the sector, enhancing automation and efficiency across various applications. Advancements in semiconductor technology are crucial for this growth, powering everything from smartphones to electric vehicles. Furthermore, sustainability initiatives are becoming increasingly important, with companies exploring eco-friendly manufacturing practices and materials to meet consumer demand for greener products.
The semiconductor industry is at a pivotal moment, driven by rapid advancements in AI and the evolving dynamics of the market. With significant players recently reporting disappointing earnings and a slower-than-expected recovery in chip demand, the sentiment surrounding semiconductor stocks is one of cautious optimism. As the market grapples with these challenges, investors are keenly focused on identifying the best electronic stocks poised to thrive amid this transformative landscape.
On October 16, Dan Niles, Niles Investment Management founder & portfolio manager, joined ‘Fast Money’ on CNBC to discuss how semiconductors are a canary in the coal mine for the tech sector. In a recent discussion about the semiconductor sector and mega-cap technology, Dan Niles provided insights into ASML’s recent performance and its implications for the broader chip industry. He highlighted that the Dutch company experienced a significant miss in orders, reporting over a 50% decline compared to expectations. This drop indicates that while demand for certain products remains strong, the overall outlook for the semiconductor market is weaker than anticipated. Niles explained that if companies are ordering its equipment today, it typically means they are preparing to produce chips about a year from now. This lag suggests a slowdown in demand that could impact future revenues.
The relationship between electronic stocks and the semiconductor industry is vital and mutually reinforcing, as semiconductors serve as the backbone of modern electronic devices. The performance of semiconductor stocks directly impacts the broader electronics sector. Supply chain fluctuations can significantly affect both industries; shortages may lead to production delays and reduced revenues for electronic manufacturers, while stabilization can foster growth for both sectors.
Our Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 15 electronic stocks with high market caps. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
High angle view of a semiconductor chip against an array of electronics components.
Corning Inc. (NYSE:GLW) is an American multinational technology company that specializes in specialty glass, ceramics, and related materials and technologies, including advanced optics primarily for industrial and scientific applications. It operates in various segments, including display technologies, optical communications, life sciences, and environmental technologies, with products used in smartphone screens, fiber-optic cables, laboratory equipment, and emission control systems.
Its optical products have seen a surge in demand due to increased investments in AI data centers. The company also supplies glass for popular smartphone brands, which are becoming AI powerhouses. This has driven over 40% growth in the optical business in Q2 compared to the previous year, despite a soft smartphone market. Corning Inc.’s (NYSE:GLW) Optical glass fiber and related products make up 34% of the total company sales, accounting for over 50% of its targeted sales growth through 2027.
The company recently partnered with Lumen to reserve 10% of Corning Inc.’s (NYSE:GLW) global fiber capacity for AI data center interconnections. Its new GenAI fiber and cable system will allow Lumen to significantly increase fiber capacity in their existing infrastructure. As of Q2 2024, it generated $3.60 billion in revenue, up 3.50% from a year-ago period.
In Optical Communications, sales surged 20% sequentially in the second quarter, marking a return to growth. Enterprise network sales soared 42%, driven by AI-related solutions. Although carrier sales declined 10%, they showed sequential growth as customers adjusted their inventory. For display technologies, sales rose 16% due to increased panel maker utilization.
It’s well-positioned for growth due to its diverse product portfolio and strong market presence. It is a promising investment with a strong foundation for future success.
O’keefe Stevens Advisory stated the following regarding Corning Incorporated (NYSE:GLW) in its Q2 2024 investor letter:
“Corning Incorporated (NYSE:GLW), another long-time holding, announced Q2 results would come in better than anticipated due to outperformance in their optical connectivity products used for Generative AI. Corning has long been a disappointing investment; with leading-edge technology, it consistently underperforms expectations. Their “springboard” plan, which revolves around $3 billion of excess capacity, seems to be the first sign in a long time that they are ready for a surge in growth. Management has frequently discussed the potential for operating leverage in nearly every conference call, anticipating a return to normal business conditions. Margins should expand over the coming quarters, driving EPS growth. The $3B in incremental sales could be worth in excess of $900m in EBITDA.”
Overall, GLW ranks 6th on our list of the 8 best electronic stocks to buy according to hedge funds. While we acknowledge the growth potential of GLW, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GLW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
