Gone are the days of cheaply made missiles and artillery shells. Today, nearly every Western-produced weapons system relies on critical semiconductors and microchips to function. Everything from the smallest handheld drones to massive aircraft carriers can only function with the digital implementation of microchips. With defense spending at an all-time high, investors should consider buying the top defense semiconductor stocks in April.
The recent withdrawal of Pentagon funding from Intel (NASDAQ:INTC) might make it seem like the U.S. government’s semiconductor priorities are shifting. The reality is a current insurmountable increase in semiconductor and microchip demand for the U.S. and its allies. For example, the FGM-148 Javelin anti-tank missile system, famously used in the Russo-Ukrainian War, uses over 250 chips.
For investors looking to maximize returns on defense semiconductor companies, key signals include new contracts, increasing military demand, and healthy supplier relations. As such, here are the semiconductor stocks in the defense industry to buy this April.
BAE Systems (BAESY)
A multi-national conglomerate of defense industry specialists, BAE Systems (OTCMKTS:BAESY) has performed exceptionally well among defense stocks in the last year. A major part of this success can be attributed to the company’s ability to win transnational contracts consistently. Due to its subsidiarys across the U.S., U.K., and Australia, BAE became an attractive contractor for the AUKUS alliance’s new submarine program.
BAE’s success story doesn’t end there, however, as the company has recently continued to expand its integrated circuit and single board computer offerings. As such, the company has been hiring and increasing expenditures, which has cut into profits, but also signals strong growth.
Furthermore, regardless of economic conditions in the U.S. or U.K., BAE’s integration with critical government programs provides stability. For investors, BAE should be among the list of top defense semiconductor stocks to buy in April.
Onsemi (ON)
A major American semiconductor supplier, Onsemi (NASDAQ:ON) serves the defense industry through dominating radiation-hardened solution products. The company’s defense focus pertains exclusively to high-reliability semiconductors for power conversion, making them a prime choice for satellites. This focus on quality and specialization means ON stock has a bright future as the U.S. and its allies modernize existing satellite fleets.
Another attractive aspect of Onsemi is its product portfolio diversification. Though the company is a critical part of the military electronics supply chain, it also touches nearly every other industry that requires power conversion technology. Thus, these essential components for regulating power flow and signal transmission in devices primarily serve the automotive and industrial markets.
From electric vehicles to industrial automation to consumer electronics, Onsemi is well diversified as a supplier to some of the fastest-growing industries of the decade. This coupled with record revenues for 2023 makes ON stock a buy in the eyes of most analysts.
L3Harris Technologies (LHX)
Through acquisitions and expansion, L3Harris Technologies (NYSE:LHX) has earned a respectable seat at the table of prime government contractors. A purebred defense contractor, the company is relatively new. It formed as a standalone venture in 2019 through the merger of L3 Technologies and Harris Corporation.
Currently, it offers a wide array of programs for the U.S. government through a portfolio of systems. These include its missions, space, airborne, and communications systems platforms which all support control platforms in the U.S. military. The company has also expanded into rocketry and propulsion with its $4.7 billion acquisition of Aerojet Rocketdyne.
From trajectory alone, LHX stock has earned favor among analysts and currently holds an aggregate rating of moderate buy. This speculation also supports a current price-to-earnings ratio in the 30s and strong revenue growth. Both metrics suggest an undervalued stock in the short term.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.