Top 5 Proxy Semiconductor Stocks to Add to Your Watchlist

In 2023, the semiconductor sector emerged as a golden goose for investors. The rise of artificial intelligence (AI) fuelled a historic surge in demand and investor interest in these chip companies.

Many of the stock market's top performers during the first half of the year belonged to the semiconductor space. This hot streak continued even as overall market sentiment turned cautious following a sell-off in small-cap and mid-cap stocks since the beginning of the month.

Semiconductor stocks, however, defied the downtrend. This bullish run can be attributed to the government's ambitious initiatives aimed at boosting domestic semiconductor production, which has left investors excited.

These initiatives have sent stock prices soaring by 70-200% over the past year. So, has the party ended for semiconductor stocks?

While some in the industry might appear to be overvalued now, there's a chance the chip sector's growth story might still have chapters to unfold.

Investors looking to gain exposure to this promising sector, but with a bit more caution, can explore proxy stocks. These companies might not be directly involved in chip manufacturing, but they still stand to benefit from the overall growth of the semiconductor industry.

Here are five proxy semiconductor stocks to add to your watchlist.

#1 SPEL Semiconductor

First on the list is SPEL Semiconductor.

SPEL Semiconductor is engaged in offering electronic integrated circuits (ICs). Its products are used mostly in cell phones, computers, notebooks, and personal digital assistants.

Its facility, Natronix, is India's first and only semiconductor IC assembly & test facility.

The company also does semiconductor packaging.

Packaging is an essential part of semiconductor manufacturing and design. It's usually done by an outsourced semiconductor assembly and test (OSAT) vendor.

It affects power, performance, and cost on a macro level and the basic functionality of all chips on a micro level. They specialise in assembly and testing processes, which are part of the back end of semiconductor manufacturing.

As semiconductor production booms in the country, the company is set to benefit from being the only OSAT in India and from the higher demand for assembly and testing services.

The company's existing customers are some of the biggest integrated device manufacturers (IDMs) and fabless companies in the US, Asia, and Europe.

The company aims to leverage the global chip shortage to drive growth. Additionally, it intends to prioritise advanced packaging technologies to penetrate new end markets.

Looking ahead, the company is keen on entering the IC design sector. Furthermore, it plans to enhance its capacity and innovate new products.

For more details, see the SPEL Semiconductor company fact sheet and quarterly results.

#2 Moschip Technologies

Second on the list is Moschip Technologies.

The company offers turnkey analogue, digital, and mixed-signal ASIC and IP design services. It has emerged as a leading semiconductor design services company in India.

In FY22, the company made significant progress with a high-speed SerDes IP portfolio and design wins with tier-1 customers. It experienced strong growth with existing customers for design services. It also acquired new customers in North America and helped them transition from 2G to 4G.

With Softnautics Inc.'s acquisition in FY23, the company strengthened its Embedded System Design capabilities.

Softnautics has established strong customer relationships with top-tier companies across North America and will add 185+ employees to the current MosChip talent pool across various domains.

The company, on 14 March 2024, partnered with Tenstorrent for the advancement of RISC-V solutions.

The partnership focuses on the design and development of Tenstorrent's RISC-V solutions, with MosChip contributing its experience in Physical Design, DFT, Verification, and RTL Design services.

Furthermore, MosChip has completed over 200 multi-million gate ASICs, which will play a crucial role in the development of Tenstorrent's RISC-V solutions.

The company is focusing on research, development, and technology advancements, particularly in embedded software and AI/ML domains.

In the future, the company aims to broaden its scope across various industries and international markets. Additionally, it intends to emphasise artificial intelligence and machine learning to provide design support for Indian semiconductor firms.

For more details, see the Moschip Semi company fact sheet and quarterly results.

#3 Tata Elxsi

Third on the list is Tata Elxsi.

Tata Elxsi is amongst the world's leading providers of design and technology services across industries, including automotive, media, communications, and healthcare.

It accelerates semiconductor and device companies' development lifecycles by providing platform software, system architecture, and design.

The Tata Group company has an established presence in the designing and development of systems and software for varied end-user industries, including semiconductors, and Tata Elxsi is slated to play an important role.

The company has a tie-up with Renesas Electronics Corporation, a premier supplier of advanced semiconductor solutions, for setting up a state-of-the-art design centre in Bangalore that will develop targeted solutions for electric vehicles (EV).

Further, in April 2023, Renesas has now introduced an NB-IoT (Narrowband Internet of Things) chipset specifically for the Indian market. The new RH1NS200 is an LTE NB-IoT modem chipset that is designed to operate seamlessly on the networks of all major Indian telecommunications carriers.

Tata Elxsi's semiconductor services are focused on SDK and reference design solutions, AI tools and frameworks, multimedia reference frameworks, and FPGA design and development.

The company is presently engaged in crafting a digital strategy and fostering robust customer connections.

Going forward, the company's venture into the Internet of Things or IoT space is expected to provide the X factor to the Tata Group company, making it a deep tech stock.

For more details, see the Tata Elxsi company fact sheet and quarterly results.

#4 RIR Power Electronics

Fourth on the list is RIR Power Electronics.

RIR Power Electronics was established by Mr Ruttonsha in technical collaboration with International Rectifier Corporation US. In 2000, it set up its Export Oriented Unit (EOU). In 2009, Orient Semiconductors was merged into RIR Power.

Today RIR is a market leader in Power Electronics. It has over 53 Years of experience and operations in 10+ countries. It is the only company in the private sector to manufacture semiconductor devices right from the diffusion stage.

RIR's product portfolio includes low power to high-power devices and IGBT Modules that find applications in welding, elevators, battery charges, and more.

In November 2023, RIR Power Electronics received official approval from the government of Odisha for a substantial investment of Rs 5.1 bn.

This investment is earmarked for the establishment of a state-of-the-art facility for the manufacturing, fabrication, and packaging of Silicon Carbide (SiC) devices in Info Valley, Khordha, Odisha.

SiC is recognised as a cutting-edge semiconductor material, offering advantages over traditional silicon semiconductors. These advantages include enhanced power handling capabilities, increased efficiency, and greater durability.

SiC devices have applications, particularly in electric vehicles, renewable energy systems, and industrial automation.

The forthcoming facility in Odisha marks a significant milestone for RIR Power Electronics as it represents the company's first manufacturing unit in India.

The company continues to focus on the high-power semiconductor devices business and foresees ample opportunities for growth in export markets.

Going forward, it plans to invest in SiC technology for growth.

For more details, see the Ruttonsha Int company fact sheet and quarterly results.

#5 MIC Electronics

Last on the list is MIC electronics

MIC Electronics is a global leader in the design, development & manufacturing of high-end telecom equipment.

The company recently announced that it has developed a 42V/3A EV battery charger for e-cycles and two-wheelers.

It is also developing high-power rating EV battery chargers for e-cycles and two-wheelers.

The company is directly or indirectly also involved in the semiconductor industry. Although it is not setting up a big facility for the same big players mentioned above, it plays a key role on the tech side.

The company specialises in semiconductor packaging and testing solutions

Note that MIC Electronics has received a slew of orders in the past six months, with the majority of orders catering to the railway's space and for semiconductor chips.

Think of small orders like the replacement of IP-based integrated passenger info at stations.

It is expanding towards areas to identify profitable business lines beyond its core operations in the Indian Railway sector.

Going forward, the company plans to focus on existing businesses to turn profitable.

For more details, see the MIC Electronics company fact sheet and quarterly results.

Conclusion

As geopolitical tensions shape the global narrative, the Indian government has identified electronics manufacturing as a key economic growth driver, with chip manufacturing at the heart of these plans.

In tumultuous times, when global value chains are more prone to collapse, the government wants to ensure a steady supply of the components needed for future technologies - from AI to electric vehicles and defence capabilities to space exploration, making space for the company's growth.

With the mega Productivity-Linked Incentives (PLI) for chip manufacturing offered by the government, India is trying to build its highly capital-intensive chip industry.

The government has introduced supportive policies for the semiconductor sector, including a US$ 10 billion incentive plan.

The Indian electronics and semiconductors market is projected to grow, with a compound annual growth rate (CAGR) of 25% through 2028.

Given the promising future of the Indian semiconductor sector, proxy stocks are poised to gain significant advantages.

You can now filter the best semiconductor stocks in India using Equitymaster's powerful stock screener.

Here are some of the most popular screens on semiconductor stocks on Equitymaster's stock screener:

1. Fastest Growing Semiconductor Stocks
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