The semiconductor industry is undergoing a transformative phase, coping with last year’s turmoil. Despite lingering macro headwinds, the industry’s long-term outlook appears promising, driven by resurgent end-use demand, especially in PC and smartphone markets, transition to advanced node manufacturing technologies, and generative AI adoption.
Amid this backdrop, investors could consider buying fundamentally sound chip stocks Trio-Tech International (TRT), Tower Semiconductor Ltd. (TSEM), and Amkor Technology, Inc. (AMKR) for potential gains.
While the chip industry is expected to hit rock bottom and likely show signs of recovery this year, geopolitical tensions and the potential expansion of U.S. export controls in China remain operational risks. Also, the recent massive earthquake in Taiwan will likely slow down and hinder the operations of leading chipmaker companies.
The semiconductor industry had a challenging year in 2023, with global sales expected to decline 9.4% year-over-year to $520 billion. However, the industry will likely show a swift recovery in 2024, with technologies like generative AI leading the way, followed by emerging smart manufacturing for chipmakers.
This year, global chip sales are predicted to reach $588 billion, 13% better than 2023. Regarding end markets, both PC and smartphone sales are anticipated to grow 4% in 2024, after last year’s declines of 14% and 3.5%, respectively.
Moreover, the CHIPS Act of 2022, which authorized $52.7 billion over five years, aims to boost domestic semiconductor research and manufacturing, reducing American companies’ reliance on Chinese suppliers. The U.S. semiconductor market is expected to reach $167.92 billion by 2032, growing at a CAGR of 8.7% from 2024 to 2032.
Besides, the global semiconductor market is anticipated to total around $1.14 trillion by 2033, exhibiting a CAGR of 7.6%.
Given these favorable market trends, let’s look at the fundamentals of the top three Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Trio-Tech International (TRT)
TRT provides manufacturing, testing, and distribution services for the semiconductor industry. The company operates through four segments: Manufacturing; Testing Services; Distribution; and Real Estate. It develops and manufactures test equipment used in front-end and back-end manufacturing processes of semiconductors.
In terms of trailing-12-month EV/Sales, TRT is trading at 0.34x, 88.8% lower than the industry average of 3x. Likewise, the stock’s trailing-12-month EV/EBIT multiple of 16.46 is 25.2% lower than the industry average of 22.01. Similarly, the stock’s trailing-12-month Price/Sales of 0.63x is 77.8% lower than the industry average of 2.86x.
TRT’s trailing-12-month EBITDA margin and ROTA of 15.81% and 1.91% are 65.6% and 27% higher than the respective industry averages of 9.55% and 1.51%. Also, the stock’s trailing-12-month levered FCF margin of 16.66% is 82.9% higher than the industry average of 9.11%.
For the fiscal 2024 second quarter that ended December 31, 2023, TRT reported revenue of $12.20 million. Net income attributable to TRT and EPS came in at $507 thousand and $0.12 for the quarter, respectively. The company’s cash and cash equivalents were $10.97 million as of December 31, 2023, compared to $7.58 million as of June 30, 2023.
Shares of TRT have surged 38.3% over the past year to close the last trading session at $6.36.
TRT’s bright prospects are reflected in its POWR Ratings. 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, each weighted to an optimal degree.
The stock has an A grade for Momentum and Value and a B for Sentiment. Within the Semiconductor & Wireless Chip industry, TRT is ranked #15 out of 91 stocks.
Click here to access additional ratings of TRT for Quality, Growth, and Stability.
Stock #2: Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry that focuses on specialty process technologies to manufacture analog-intensive mixed-signal semiconductor devices globally. The company provides various customizable process technologies like SiGe, BiCMOS, mixed-signal/CMOS, and RF CMOS.
On February 26, 2024, TSEM and Tianyi Micro, a leading provider of micro display driver chips specializing in silicon-based micro-OLEDs and micro-LEDs, announced their strategic cooperation for developing next-generation OLED micro displays for AR/VR to cater to the Chinese and global market needs.
The strategic partnership will expand TSEM’s offerings to include dedicated flows for micro display applications and address a wider customer base.
On January 16, TSEM collaborated with Renesas to manufacture siGe-based beamforming ICs for tier-1 customers in satcom, 5G, and aerospace & defense applications.
“We are excited to partner with Renesas in bringing these breakthrough products to market leveraging our industry leadership in SiGe foundry technology along with their strong product development, talent and market presence,” stated Dr. Marco Racanelli, President at Tower Semiconductor.
TSEM posted revenue of $351.71 million for the fourth quarter that ended December 31, 2023, and its gross profit was $84.42 million. The company’s adjusted net profit and adjusted EPS came in at $60.95 million and $0.55, indicating marginal growth from the prior quarter, respectively.
In addition, TSEM’s total current assets as of December 31, 2023, were $1.71 billion, compared to $1.49 billion as of December 31, 2022.
As per the company’s business outlook, TSEM expects revenue of $325 million in the first quarter of 2024.
Street expects TSEM’s revenue and EPS for the fiscal year (ending December 2025) to increase 11.6% and 19.3% year-over-year to $1.58 billion and $2.25, respectively. Also, the company has topped the consensus EPS estimate in all four trailing quarters, which is remarkable.
Shares of TSEM have surged 1.3% over the past month and 45.1% over the past year to close the last trading session at $31.80.
TSEM’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TSEM has an A grade for Momentum and a B for Value and Quality. It is ranked #12 out of 91 stocks in the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings we’ve stated above, we also have TSEM ratings for Growth, Sentiment, and Stability. Get all TSEM ratings here.
Stock #1: Amkor Technology, Inc. (AMKR)
AMKR offers outsourced semiconductor packaging and test services internationally. It offers turnkey packaging and test services, flip-chip scale package products, flip-chip stacked chip scale packages, flip-chip ball grid array packages, and memory products.
On April 8, 2024, AMKR and Infineon Technologies AG (IFNNY) entered into a multi-year partnership to operate a dedicated packaging and test center at AMKR’s manufacturing site in Porto, whose operations are expected to commence in the first half of 2025.
The long-term agreement will further strengthen the companies’ partnership and complement AMKR’s operations, enhancing supply chain resiliency for advanced products supporting automotive and industrial end markets.
On January 16, AMKR and GlobalFoundries (GF) announced their strategic partnership to strengthen the European Union automotive supply chain and expand services for global customers.
AMKR’s extensive global footprint and solid European presence combined with GF’s tools, processes, and expertise will enable the Porto site to help the European Union pursue its goals of ensuring supply chain stability and delivering the next-generation automotive and other critical chip solutions. This partnership will benefit both companies significantly.
For the fourth quarter, which ended on December 31, 2023, AMKR reported revenues of $1.75 billion, and its operating income was $158.66 million. In addition, net income attributable to Amkor and EPS were $117.56 million and $0.48 for the quarter, respectively.
Furthermore, the company’s free cash flow increased 175.3% from the prior year’s period to $534 million. Its cash and cash equivalents stood at $1.12 billion as of December 31, 2023, compared to $959.07 million as of December 31, 2022.
As per the company’s business outlook, AMKR expects net sales to be $1.30 billion to $1.40 billion. Its net income is expected to be between $8 million and $48 million, or $0.03 to $0.19 per share.
Street expects AMKR’s revenue for the third quarter (ending September 2024) to increase 2.2% year-over-year to $1.86 billion, and its EPS for the same period is expected to grow 22.7% year-over-year to $0.66. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
AMKR’s shares have gained 34.1% over the past six months and 29% over the past year to close the last trading session at $31.21.
AMKR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum. The stock also has a B grade for Value and Sentiment. Within the Semiconductor & Wireless Chip industry, AMKR is ranked #9 out of 91 stocks.
In addition to the POWR Ratings we’ve stated above, we also have AMKR ratings for Growth, Stability, and Quality. Get all AMKR ratings 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.
NINOY shares were unchanged in premarket trading Wednesday. Year-to-date, NINOY has gained 0.36%, versus a 6.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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