The semiconductor industry is poised for substantial growth, driven by constant technological advancements and the integration of chips into various applications, such as consumer electronics, automotive, healthcare, and industrial sectors.
So, investors could consider buying fundamentally sound chip stocks Silicon Motion Technology Corporation (SIMO), Amkor Technology, Inc. (AMKR), and Cirrus Logic, Inc. (CRUS), which have strong prospects.
The rising penetration of digital technologies and widespread application of semiconductors in various end-use sectors, including electronics, healthcare, industrial equipment, automotive, networking and communications, and data processing are the major factors that boost the growth of the global semiconductor market.
According to a Precedence Research report, the global semiconductor market is expected to reach $1.14 trillion by 2033, growing at a CAGR of 7.7% during the forecast period (2024-2033). Furthermore, The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors totaled $137.70 billion during the first quarter of 2024, an increase of 15.2% year-over-year.
Additionally, the incorporation of AI in chipsets enhances their functionality, enabling devices to perform complex tasks and make intelligent decisions locally. This AI integration is expected to create new opportunities and applications across various industries, driving the demand for advanced chipsets.
Therefore, the wireless connectivity chipset market is expected to reach $12.72 billion by 2029, growing at a CAGR of 8.4%. Moreover, investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 26% returns over the past six months.
Considering these factors, let’s analyze the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Silicon Motion Technology Corporation (SIMO)
Based in Hong Kong, SIMO designs, develops, and markets NAND flash controllers for solid-state storage devices in Taiwan, the United States, Korea, China, Malaysia, Singapore, and internationally.
On March 13, 2024, SIMO introduced its UFS (Universal Flash Storage) 4.0 controller, the SM2756, as the flagship of the industry's broadest merchant portfolio of UFS controller solutions for the growing requirements of AI-powered smartphones and other high-performance applications, including automotive and edge computing.
SIMO’s trailing-12-month EBIT margin of 8.61% is 60.6% higher than the 4.74% industry average. Its trailing-12-month EBITDA margin of 10.71% is 8.3% higher than the industry average of 9.89%. Likewise, the stock’s 8.34% trailing-12-month net income margin is 213.6% higher than the 2.66% industry average.
For the first quarter that ended March 31, 2024, SIMO net sales increased 52.6% year-over-year to $189.31 million. Its gross profit came in at $85.12 million, up 62.8% from the previous year’s quarter. The company’s non-GAAP net income and non-GAAP earnings per ADS grew 93.5% and 94% year-over-year to $21.59 million and $0.64, respectively.
Analysts expect SIMO’s revenue for the second quarter (ending June 2024) to increase 45.3% year-over-year to $203.88 million. Its EPS is expected to increase 139.3% year-over-year to $0.91 for the same period. Also, the company topped the consensus revenue estimates in each of the four trailing quarters, which is remarkable.
SIMO’s shares have gained 39.6% over the past year to close the last trading session at $77.22.
SIMO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating 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.
SIMO has an A grade for Sentiment and a B for Growth and Value. It is ranked #8 out of 93 stocks in the Semiconductor & Wireless Chip industry.
Click here to see the additional POWR Ratings for SIMO (Stability, Momentum, and Quality).
Stock #2: 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 May 14, 2024, AMKR declared a quarterly cash dividend of $0.07875 per share on the company’s common stock, payable on June 24, 2024. AMKR pays an annual dividend of $0.32, which translates to a yield of 0.95% on the current market price, higher than its four-year average dividend yield of 0.71%.
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.
AMKR’s trailing-12-month EBITDA margin of 17.10% is 72.9% higher than the industry average of 9.89%. Its trailing-12-month EBIT margin of 7.41% is 56.3% higher than the industry average of 4.74%. Likewise, its trailing-12-month net income margin of 5.84% is 119.5% higher than the industry average of 2.66%.
For the first quarter, which ended on March 31, 2024, AMKR reported net sales of $1.37 billion, and its operating income increased 5.8% year-over-year to $73 million. In addition, net income attributable to Amkor and EPS were $59 million and $0.24, up 31.1% and 33.3% year-over-year, respectively. Its EBITDA rose 1.7% from the prior year’s quarter to $233 million.
Analysts expect AMKR’s revenue for the third quarter (ending September 2024) to increase 2.5% year-over-year to $1.87 billion, and its EPS for the same period is expected to grow 22.2% year-over-year to $0.66. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of AMKR have gained 48.3% over the past year to close the last trading session at $33.46.
AMKR’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
AMKR has an A grade for Momentum and Sentiment and a B for Value. The stock is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated for Growth, Quality, and Stability. Get all AMKR ratings here.
Stock #1: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that develops low-power, high-precision mixed-signal processing solutions both domestically and internationally. The company provides audio solutions, including integrated audio components, smart codecs, amplifiers, DSPs, and SoundClear technology for enhanced user experiences.
In terms of the trailing-12-month gross profit margin, CRUS’ 51.21% is 3.1% higher than the 49.69% industry average. Likewise, its 19.31% trailing-12-month EBIT is 307.3% higher than the 4.74% industry average. Additionally, its 11.45% trailing-12-month Return on Total Capital is 335.3% higher than the 2.63% industry average.
For the fiscal fourth quarter that ended March 30, 2024, CRUS’ net sales from high-performance mixed-signal net sales rose 3.4% year-over-year to $145.15 million. The company’s non-GAAP operating income increased 14.3% over the prior-year quarter to $76.51 million. Its non-GAAP net income and EPS amounted to $69.05 million and $1.24, up 31.2% and 34.8% year-over-year, respectively.
Street expects CRUS’ revenue for the fiscal year (ending March 2026) to increase 8.3% year-over-year to $1.96 billion. The consensus EPS of $7.07 for the same year indicates an improvement of 12.4% year-over-year. Additionally, the company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
CRUS’ shares have surged 31.8% over the past month to close the last trading session at $116.69.
CRUS’ robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, Quality, and Value. CRUS is ranked first in the same industry.
To access CRUS’ additional ratings for Stability and Momentum, click 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.
AMKR shares were trading at $32.79 per share on Wednesday afternoon, down $0.67 (-2.00%). Year-to-date, AMKR has declined -1.22%, versus a 11.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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