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).
A trader on the floor of a bank's trading room, surrounded by sophisticated electronic equipment.
Celestica Inc. (NYSE:CLS) is an American-Canadian multinational electronics manufacturing services company that operates in multiple sites across various countries. It provides design, engineering, manufacturing, and supply chain management services to a diverse customer base across different industries. Its expertise lies in the production of complex electronic assemblies and systems, particularly in communications, computing, industrial, and medical technologies.
The company’s connectivity products for AI data centers have been in high demand, especially its 400G and 800G switches and storage solutions. Hyperscalers investing in AI infrastructure have been driving this surge, leading to a 50% year-over-year increase in connectivity revenues in Q2.
It recently unveiled its new SC6100, a high-performance 2U rackmount all-flash storage controller designed for enterprise applications. Leveraging its expertise in storage, compute, and networking solutions, the company has developed a controller powered by two AMD EPYC Embedded 9004 processors and capable of supporting up to 24 dual-port U.2 PCIe Gen 5 SSDs. This cutting-edge technology is a testament to its growth in the AI-driven market.
Revenue was up 23.33% year-over-year in Q2 2024, driven by the large-scale investments in data center infrastructure from hyper-scale customers. The Cloud and Connectivity Solutions revenue saw a 51% year-to-year increase. High-Performance Solutions revenue made up 29% of total company revenue and was up 94%. Some of the growth was offset by the decline in Advanced Technology Solutions due to continued softness in the industrial business, still accounting for 32% of total revenues in Q2.
Celestica Inc. (NYSE:CLS) appears to be well-positioned for continued growth, driven by its diverse range of high-reliability hardware platform solutions and strong focus on emerging technologies like AI. The company’s strong financial performance suggests a promising outlook for investors.
Overall, CLS ranks 5th on our list of the 8 best electronic stocks to buy according to hedge funds. While we acknowledge the growth potential of CLS, 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 CLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
