Despite potential susceptibility to broad economic trends, the semiconductor industry holds promise for growth. This optimism is partly due to rising consumer demand for electronic devices, paired with the advent of sophisticated technologies necessitating high-end memory chips.

Given this backdrop, fundamentally strong semiconductor stocks Photronics, Inc. (PLAB), Diodes Incorporated (DIOD), and Infineon Technologies AG (IFNNY) could be wise portfolio additions now.

A broad spectrum of applications, such as Artificial Intelligence (AI), Augmented and Virtual Reality (AR/VR), the Internet of Things (IoT), autonomous vehicles, EVs, High-Performance Computing (HPC), aerospace, satellite communications, 5G and 6G networks, smart cities, health tech, and more, are heavily reliant on continual advancements in semiconductor technologies and are all propelling the industry’s growth.

The Semiconductor Industry Association (SIA) recently disclosed that the global semiconductor industry sales totaled $43.2 billion in July 2023, reflecting a month-over-month increase of 2.3%. The global semiconductor chip market is expected to grow at a CAGR of 12.2% to reach $1.38 trillion by 2029.

Favorable government policies and funding further bolster the industry's prospects. Last month, the Biden administration unveiled plans to allocate $238 million through the Defense Department, purposed to establish eight innovation hubs dedicated to the semiconductor industry across the United States.

This marks an early disbursement from the almost $53 billion in grants and subsidies approved by Congress and the Biden administration to strengthen the domestic semiconductor industry.

According to the global industry association, SEMI’s mid-year forecast predicts a resurgence in global sales of total semiconductor manufacturing equipment in 2024. Following an estimated contraction of 18.6% in 2023, sales are anticipated to reach $87.40 billion, succeeding the industry record of $107.40 billion achieved in 2022.

Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks in the Semiconductor & Wireless Chip industry, starting with the third in line.

Stock #3: Photronics, Inc. (PLAB)

PLAB manufactures and sells photomask products and services in the United States, Taiwan, China, Korea, Europe, and internationally.

PLAB’s trailing-12-month cash from operations of $274.82 million is 354.8% higher than the industry average of $60.43 million. Also, its trailing-12-month ROCE of 13.02% is significantly higher than the industry average of 1.16%, while its ROTC of 12.86% is 443.2% higher than the industry average of 2.37%.

For the fiscal third quarter that ended July 30, 2023, PLAB’s revenue increased 1.9% year-over-year to $224.21 million, while gross profit grew 3.5% from the year-ago value to $86.80 million. Moreover, the company’s non-GAAP net income and non-GAAP earnings per share rose 9.7% and 8.5% from the prior year’s quarter to $31.64 million and $0.51, respectively.

As of July 30, 2023, PLAB’s total current assets stood at $772.21 million, compared to $644.65 million as of October 31, 2022.

Street expects PLAB’s revenue to increase 6.5% year-over-year to $224 million in the fiscal fourth quarter ending October 2023. Its EPS is expected to come at $0.53. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

The stock has gained 38.9% over the past year to close the last trading session at $20.31. Over the past six months, it gained 22.5%.

PLAB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

It has an A grade for Momentum and a B in Value and Quality. Within the 90-stock Semiconductor & Wireless Chip industry, it is ranked #9.

Beyond what is stated above, we’ve also rated PLAB for Growth, Stability, and Sentiment. Get all PLAB ratings here.

Stock #2: Diodes Incorporated (DIOD)

DIOD manufactures and supplies application-specific standard products across discrete, logic, analog, and mixed-signal semiconductor markets. The company caters to industrial, automotive, computing, communications, and consumer sectors through a network of direct sales, marketing teams, independent representatives, and distributors.

On September 19, DIOD launched a high-sensitivity Hall-effect sensor portfolio, the AH39xxQ series. These robust devices offer precise speed and direction data or two independent outputs. Designed for industrial and automotive applications, they could enhance DIOD’s competitive edge in these sectors.

On September 14, DIOD expanded its product range by introducing two automotive-compliant low dropout (LDO) voltage regulator series: the AP7583AQ and AP7583Q. These LDOs, tailored for battery-connected automotive applications, position DIOD to meet the demands of critical microelectronics hardware in the automotive sector.

The expansion could enhance DIOD’s market presence in segments such as body control modules, in-vehicle networking transceivers, Electric Vehicle (EV) battery-management systems, exterior lighting infrastructure, and instrumentation clusters, strengthening its competitive edge and revenue streams.

DIOD’s trailing-12-month cash from operations of $427.59 million is 607.6% higher than the industry average of $60.43 million. Also, its trailing-12-month ROCE of 21.99% is significantly higher than the industry average of 1.16%, while its ROTC of 13.37% is 464.8% higher than the industry average of 2.37%.

For the fiscal second quarter that ended June 30, 2023, DIOD’s net sales and gross profit stood at $467.15 million and $195.38 million, respectively. The company’s non-GAAP net income and non-GAAP earnings per share stood at $73.33 million and $1.59, respectively. Its non-GAAP EBITDA stood at $133.45 million, up 2.1% year-over-year.

Furthermore, as of June 30, 2023, the company’s long-term debt stood at $54.58 million, compared to $147.47 million as of December 31, 2022.

Street expects DIOD’s revenue and EPS for the third quarter ending September 2023 to come at $425.42 million and $1.21, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.

The stock has gained 5.4% year-to-date to close the last trading session at $80.22. Over the past year, it gained 23.6%.

DIOD’s sound fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

DIOD has an A grade for Value. It is ranked #8 within the same industry.

Click here to see DIOD’s POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality.

Stock #1: Infineon Technologies AG (IFNNY)

Headquartered in Neubiberg, Germany, IFNNY designs, develops, manufactures, and markets semiconductors and related system solutions worldwide. It operates through four segments: Automotive; Green Industrial Power; Power & Sensor Systems; and Connected Secure Systems.

On August 16, IFNNY and leading power supply manufacturer Chicony Power Technology extended their partnership, aiming to enhance the performance of IFNNY's PD3.1 notebook adapter series through gallium nitride (GaN) technology application.

This collaboration will empower IFNNY to provide innovative power designs for PD3.1 adapters, promoting high-performance computing efficiency and portability. This initiative aligns with their commitment to environmental sustainability and financial growth.

On August 8, 2023, IFNNY, in conjunction with tech giants Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM), Robert Bosch GmbH, and NXP Semiconductors N.V. (NXPI), announced plans for a joint investment in European Semiconductor Manufacturing Company (ESMC) GmbH, located in Dresden, Germany, to enhance advanced semiconductor manufacturing services.

The investment in ESMC signifies a considerable stride forward in creating a 300mm fab necessary to cater to the burgeoning demands of the automotive and industrial sectors. Finalization of the investment is contingent on confirming public funding levels for this initiative. Processes for this project are mapped under the regulations set by the European Chips Act.

The company has a record of paying dividends to its shareholders for 12 consecutive years. It pays $0.34 annually as dividends, translating to a yield of 0.94% at the current market price. Its four-year average dividend yield is 1%. IFNNY’s dividend payments have grown at CAGRs of 5.2% and 2.3% over the past three and five years, respectively.

IFNNY’s trailing-12-month cash from operations of $4.24 billion is significantly higher than the industry average of $60.43 million. Also, its trailing-12-month ROCE of 20.89% is significantly higher than the industry average of 1.16%. Its ROTC of 12.74% is 438.1% higher than the industry average of 2.37%.

For the fiscal third quarter that ended June 30, 2023, IFNNY’s revenue increased 13% year-over-year to €4.09 billion ($4.31 billion), while its gross profit stood at €1.82 billion ($1.92 billion), up 16.4% from the year-ago quarter.

The company’s adjusted profit for the period from continuing operations attributable to shareholders of IFNNY and adjusted earnings per share stood at €887 million ($933.89 million) and €0.68, up 39% and 38.8% year-over-year, respectively. Its free cash flow stood at €326 million ($343.23 million).

Street expects IFNNY’s revenue to increase 4.2% year-over-year in the fiscal fourth quarter ending September 2023 to $4.46 billion. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.

The stock has gained 9% year-to-date to close the last trading session at $32.85. Over the past year, it gained 49.6%.

IFNNY’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

It has a B grade for Value and Stability. Within the Semiconductor & Wireless Chip industry, it is ranked #4.

In addition to the POWR Ratings we’ve stated above, we also have IFNNY’s ratings for Growth, Momentum, Sentiment, and Quality. Get all IFNNY ratings here.

What To Do Next?

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IFNNY shares were trading at $32.62 per share on Tuesday afternoon, down $0.23 (-0.69%). Year-to-date, IFNNY has gained 8.83%, versus a 11.47% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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