3 Early-Bird Tickets To The Memory Chip Boom

David Goodboy's picture

Friday, June 9, 2017 - 2:30pm

by David Goodboy

Computers and the internet have become indispensable parts of our lives. From smart phones and automobiles to how we bank and even exercise, rarely does a day go by that we do not interface with the silicon chip-powered machines. 

Most investors focus on the microprocessor when they think of computer chips. Giants such as Intel (Nasdaq: INTC) have built empires on the back of the microprocessor revolution. 

Obviously, microprocessors are here to stay, but decent opportunities for investors in the space are rapidly diminishing. The mature industry is in the midst of a long-term plateau as manufacturing efficiencies, economies of scale, and market saturation drive prices ever lower. 

If you missed the microprocessor boom, it's not too late to capitalize on the chip market. Today's explosive trends, including artificial intelligence, machine learning, and the ubiquitous Internet of Things, all have one thing in common: An insatiable thirst for recalling and analyzing massive amounts of information. 

We are in the infancy of the next technological revolution, and memory chips are at the core of these radical changes. Even better, their rise could bring investors the same results seen by early backers of microprocessors.

What Are Memory Chips
Memory chips are where the data used by the microprocessor is stored. They are integrated circuits created from millions of microscopic capacitors and transistors that maintain data or process code. Memory can be either random-access memory (RAM) or read-only memory (ROM). 

Prices of benchmark memory chips rocketed approximately 30% in 2016. The high demand resulted brought Samsung, the world's largest memory-chip maker, record quarterly operating profits and set its share price soaring nearly 80% over the year. 

Another memory chip maker, Micron (Nasdaq: MU) has soared over 70% since 2015, but that's not what has me excited in the space. 

There are two smaller companies that are poised to continue pushing higher on the back of the memory chip boom. You likely have never heard of these firms. 

3 Easy Ways To Profit From The Memory Chip Boom
1. Impinj (Nasdaq: PI)

This Seattle -based technology company is developing chips that can operate on a fraction of a watt of power. Known as radio frequency identification (RFID) chips, these efficient  devices can be built into everyday objects, allowing for identification and information expression. In other words, objects embedded with the chips become "smart." 

RFID is quickly gaining market traction, and Impinj is on the cutting edge of the trend. 

According to a recent market research report published by MarketsandMarkets, the RFID market is expected to be valued at over $31 Billion by 2023, growing at a compounded rate of nearly 8% between 2017 and 2023. The factors that are driving the growth of this market are the increasing penetration of RFID chips in various industries, and the evolution of the Internet of Things.

The last bit about the Internet of Things is what has me most excited about Impinj's stock. One of the keys to powering the Internet of Things is the creation of smart objects that can be identified at a distance. Impinj products utilize nonvolatile memory, which does not require an internal power source. The chip becomes activated when it is struck by a wireless signal, allowing for ultra-low-cost manufacturing. At only pennies per chip, they can be embedded in literally billions of objects, allowing the connected dream of the Internet of Things to be fully realized.

Interestingly, Impinj is not a pure chip company. It creates and markets an entire ecosystem in which its chips function. Selling the nonvolatile chips, the wireless readers, and the software provides a serious edge to the company. 

Shares have soared over 125% since the company went public in July 2015, and sales are projected to climb another 30% this year. Unlike most high-tech startups, this company is already producing real profits. 

2. Everspin (Nasdaq: MRAM)
Publicly traded since October 2016, this company is in the business of replacing digital RAM with its more efficient magnetoresistive RAM chips. The replacement results in massive cost savings for customers.

Everspin's chip is used in industrial equipment requiring small amounts of memory. Traditionally, memory is passed from DRAM to flash. The process requires batteries and extra circuitry to maintain the data, both of which increase cost. Everspin's chips eliminate the batteries and additional circuitry, resulting in much lower costs. 

Proponents of the technology project that the MRAM market could be worth $1.7 billion as soon as 2018. And Everspin, as the leading producer of the chips, would be perfectly positioned to profit from this shift.

Despite its potential, the company is forecasted to create revenue of just $43 million in 2017 and is currently losing money. Everspin is only suited for risk-embracing investors. 

3. iShares PHLX Semiconductor ETF (Nasdaq: SOXX)
This BlackRock ETF is trading higher by nearly 60% over the last 52 weeks. It's comprised of a wide swath of the chip business, rather than purely focused on memory chips. However, it's still a great way for more conservative investors to gain diversified exposure to the memory chip industry. 

Risks To Consider: Both Impinj and Everspin are only suited for risk embracing investors. The memory chip business is very volatile, so only invest money that you can afford to lose in these relatively recent IPOs.

Action To Take: Long-term, risk-taking investors can consider buying Impinj and Everspin on price pullbacks or breakouts. While volatility is inherent in the memory chip business, investors seeking lower risk via diversification can consider iShares PHLX semiconductor ETF. 

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David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.