Hidden Gems – Canada’s Best Semiconductor Stocks in December 2024

For those looking for semiconductor exposure, you’ll likely think you need to head south of the border or even internationally.

However, there are some top Canadian semiconductor stocks that you can buy right on Canadian exchanges. They just aren’t as notable of names such as Taiwan Semiconductor (TSM), Advanced Micro Devices (AMD), or Nvidia (NVDA). Canadian stocks are sometimes overlooked across various industries.

Looking for Canadian exposure instead? Let’s look at some of the top Canadian semiconductor stocks to buy

A disclosure before we begin. All of the semiconductor stocks listed below are small/micro-cap companies, prone to much larger swings in price and overall risks than the major players.

Although they do promise more upside, you must understand that they pose much higher risks if you choose to invest. They must be monitored extensively, more so than buying long-term investments like blue chip stocks.

Ensure you understand your investment objectives and risk tolerance before considering these companies.

With that being said, let’s get started.

What are the best Canadian semiconductor stocks?

• Spectra Microsystems Inc. (SEV.V)
• POET Technologies Inc. (PTK.V)
• Celestica Inc. (TSX:CLS)

Spectra Microsystems Inc. (SEV.V)

Spectra7 Microsystems Inc (SEV.V) is a high-performance analog semiconductor company delivering unprecedented bandwidth, speed, and resolution to enable disruptive industrial design for electronics manufacturers in virtual reality, augmented reality, mixed reality, data centers, and other connectivity markets.

It is essential to remember that Spectra, at the time of writing, is a nano-cap stock with a market cap of only $22M.

The company has been growing revenue at a relatively rapid pace. The top line increased from just over $1M in 2020 to more than $5M in 2021, more than doubling once again to more than $11M in 2022. Analysts continue to be bullish, projecting sales will surpass amounts recorded in Fiscal 2023 by double digits.

A growing revenue stream isn’t the be all end all, however. This company has witnessed a significant drawdown in a rising rate environment primarily due to its speculative nature and debt levels. It has been a publicly-traded company for years now, and still hasn’t posted an annual profit. 

The company has a debt-to-equity ratio of over 9, a negative interest coverage ratio, and a dwindling cash balance. So, we will likely see a share offering from the company. It has tripled its outstanding shares since 2020, and investors will have to get used to this dilution as the company works through the initial growth phase.

This is by far the highest risk/reward company on this list and should be invested in with extreme caution.

POET Technologies Inc. (PTK.V)

POET Technologies Inc. (PTK.V) was initially incorporated in 1972 and is currently based in Toronto. The company is involved in many components of the optoelectronics industry, including design, development, manufacturing, selling, and distribution.

POET Technologies Inc offers integration solutions based on the POET Optical Interposer, a novel platform for seamlessly integrating electronic and photonic devices into a single module using advanced wafer-level manufacturing techniques and packaging methods.

Its products have applications in Data Centers, Telecommunications, the Internet of Things & Industrial Sensing, Automotive LIDAR, and On-Board Optics. Most of the business is focused in Asia, the United States, and Canada.

The company rose significantly in popularity during the Coronavirus outbreak but has since returned most of its gains. With a market cap of only $162M, it has suffered a large-scale drawdown in this risk environment we’re currently in.

The issue with POET is not in its future potential. It is in its current state. The company is virtually pre-revenue, generating only $700,000~ in revenue in 2022. As mentioned, the markets are very risk-off at this moment.

The benefit for investors or potential investors in POET is that it doesn’t carry any debt, which should shield it from higher interest rates. 

This isn’t as high-risk of a play as something like Spectra. But make no mistake, pre-revenue companies trading on the venture are exposed to significant volatility.

Analysts have the company finally posting revenue in 2024. However, things can change relatively quickly, and losses are expected to grow over those years as well as the company continues to grow the business at the expense of profits.

Overall, POET’s price movements have mostly aligned with the semiconductor industry. The bullish future for cloud computing and related technologies will give POET plenty of opportunities to grow.

Celestica Inc. (TSX:CLS)

Celestica Inc. (TSE:CLS) was founded in 1974 and is currently headquartered in Toronto. The company is one of the largest Canadian semiconductor producers and boasts a market cap of about $1.9 billion.

This made Celestia Inc. one of the best recent-performing stocks within Canada’s still-growing semiconductor industry.

The company currently has a little less than 120M in shares outstanding. It has been consistently buying back shares over the last five years, a significant contrast to the others on this list who are issuing shares rapidly.

The company is also profitable and is expected to grow earnings and revenue at a mid-to-high single-digit pace over the next few years. The share buyback will give an extra boost to earnings on a per share basis, too. 

The company operates with two distinct segments—Advanced Technology Solutions (ATS) and Connectivity Cloud Services (CCS) – both of which are poised for long-term growth. Its products are also well-diversified and used across various sectors, including aerospace, industry, energy, health, and capital equipment.

As the world was taught a lesson regarding the global supply chain in the pandemic, demand for CLS’s products can be expected to continue to grow. Estimates have the company growing revenue in the mid single digit range while earnings are expected to grow at a low double digit pace on a per share basis.

Why Canadian semiconductor stocks?

Unless you’ve been living under a rock, you likely know that there has been a significant semiconductor shortage since the pandemic. Supply chain issues and semiconductor companies’ inability to keep up due to high demand created a bottleneck in the industry that still exists even in 2024.

Yes, it has calmed down. However, semiconductor stocks, semiconductor products, and semiconductor manufacturing are still expected to be in high demand for the foreseeable future.

Whether it is your automobile, smartphone, tablet, or any other consumer electronics product, semiconductors are critical. Their demand will only grow, especially as we enter new fields like the Internet of Things and artificial intelligence. Without these products, sectors like the top Metaverse stocks in Canada would not be possible.

For seasoned investors or those just learning how to buy stocks, there are some Canadian semiconductor companies that we can be aware of as the industry changes.

Is there a semiconductor ETF that holds the best semiconductor stocks?

If you’re looking to buy all the top semiconductor companies globally at once, you’re in luck. That is because there is the Horizons Global Semiconductor Index ETF trading under the ticker CHPS.

It contains some of the fastest-growing companies in the industry, including Nvidia, ASML Holdings, Broadcom, Intel, Qualcomm, and Advanced Micro Devices.

With assets under management of just over $39M, it is a relatively small ETF. However, considering it started in June 2021, it will likely continue picking up steam.