The semiconductor industry is experiencing a significant upswing driven by increasing demand for chips in smartphones, IoT devices, and emerging technologies like AI and 5G. Moreover, government investments and initiatives are boosting domestic chip production.
So, quality semiconductor stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), ASE Technology Holding Co., Ltd. (ASX), and United Microelectronics Corporation (UMC) could be ideal investments next month. These companies also pay stable dividends.
Considering the surging demand for smartphones and AI chips, IDC expects the global semiconductor market to regain momentum in 2024, forecasting an annual growth rate of over 20%.
Moreover, according to SEMI, the global semiconductor capacity is set to increase by 6.4% in 2024, surpassing 30 million wafers per month for the first time, driven by growth in leading-edge logic and foundry spurred by generative AI and high-performance computing demand.
Additionally, the Semiconductor Robot market is rapidly expanding due to advancements in semiconductor, AI, and robotics technologies. Equipped with sophisticated microprocessors and sensors, these robots automate complex or hazardous tasks across industries like manufacturing and healthcare, driving efficiency and precision. The semiconductor robot market in the U.S. is predicted to expand at a CAGR of 18.2%.
On top of it, the Biden administration is bolstering the U.S. semiconductor industry with billions of dollars in subsidies, aiming to reduce reliance on foreign chip production and boost economic growth. Overall, the administration's support for the semiconductor industry seeks to create jobs, enhance technological capabilities, and ensure a more self-sufficient future for the U.S.
Investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 11% returns over the past three months.
In light of these encouraging trends, let's look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: Taiwan Semiconductor Manufacturing Company Limited (TSM)
Based in Hsinchu City, Taiwan, TSM is a leading global semiconductor manufacturer, specializing in advanced integrated circuits. Its products serve diverse industries, including high-performance computing, smartphones, and automotive applications.
Its annual dividend of $1.84 yields 1.67% on the prevailing price level. The company has raised its dividend payouts at a CAGR of 2.2% over the past three years.
During the fourth quarter, which ended December 31, 2023, TSM reported net revenue of NT$625.53 billion ($19.81 billion). Its net income and EPS amounted to NT$238.31 billion ($7.55 billion) and NT$9.21, respectively. The company’s total assets amounted to NT$5.53 trillion ($175.10 billion), compared to its previous-year quarter’s total assets of NT$4.96 trillion ($157.05 billion).
Street expects TSM’s EPS and revenue to rise 1.1% and 10% year-over-year to $1.32 and $18.28 billion in the fiscal first quarter ending March 2024. It surpassed the consensus EPS estimates in all four trailing quarters, which is notable.
The stock has gained 40.3% over the past six months to close the last trading session at $130.64.
TSM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and Quality and a B for Sentiment. TSM is ranked #13 out of 90 stocks within the Semiconductor & Wireless Chip industry.
To see additional TSM ratings for Growth, Value, and Stability, click here.
Stock #2: ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX operates in the Integrated Circuit (IC) and Electronic Manufacturing Service segments. The company also provides additional services, encompassing real estate development, construction, property sales, and more.
The company pays an annual dividend of $0.56, which yields 5.74% on the current market price, higher than the four-year average dividend yield of 5.02%. The company has raised its dividend payouts at a CAGR of 52.2% over the past three years.
During the fiscal fourth quarter, which ended December 2023, ASX’s total net revenues amounted to NT$160.58 billion ($5.08 billion). Its gross profit stood at NT$25.76 billion ($815.65 million). Net income attributable to shareholders of the parent came in at NT$9.39 billion ($297.32 million) and the company’s EPS stood at NT$2.13.
Street expects ASX’s revenue to increase 6.6% year-over-year to $19.94 billion for the fiscal year ending December 2024. The company’s EPS for the current year is expected to grow 43.9% from the previous year to $0.66. Also, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 37.9% to close the last trading session at $9.86.
ASX’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
ASX has an A grade for Momentum and a B for Value. It is ranked #9 in the same industry.
In addition to the POWR Ratings I’ve highlighted, one can see ASX’s Growth, Stability, Sentiment, and Quality ratings here.
Stock #1: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC provides integrated circuit (IC) production for applications spanning every sector of the electronics industry. The company operates through two segments: Wafer Fabrication; and New Business.
UMC pays an annual dividend of $0.58 per share, which translates to a dividend yield of 7.56% on the current share price. Its four-year average yield is 4.58%. UMC’s dividend payments have grown at CAGRs of 61.6% and 37.7% over the past three and five years, respectively.
During the fiscal fourth quarter that ended December 31, 2023, UMC’s operating revenues and gross profit stood at $1.79 billion and $580 million, respectively. Net income attributable to shareholders of the parent and earnings per ADS stood at $430 million and $0.17, respectively.
As of December 31, 2023, UMC’s total current liabilities stood at $3.22 billion, compared to $3.54 billion as of December 31, 2022.
Analysts expect UMC’s revenue to rise 6% year-over-year to $7.61 billion in the fiscal year 2024. Its EPS is expected to stand at $0.61 in the same year. The company surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 10.6% over the past six months to close the last trading session at $7.62.
UMC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
UMC has an A grade for Momentum and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #5.
Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, and Sentiment. Get all ratings of UMC here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TSM shares were trading at $130.02 per share on Tuesday morning, down $0.62 (-0.47%). Year-to-date, TSM has gained 25.02%, versus a 6.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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