The semiconductor sector is growing due to strong demand from high-performance computing, AI hardware acceleration, and rising EV needs. Companies are investing billions in advanced chip manufacturing, enabling faster and more powerful technology. This growth fuels innovations across industries, driving the tech boom and shaping the future of global technology.
Amid this backdrop, it could be wise to add fundamentally strong semiconductor stocks NXP Semiconductors N.V. (NXPI), Taiwan Semiconductor Manufacturing Company Limited (TSM), and Applied Materials, Inc. (AMAT) as they are driving the tech boom.
Semiconductors are vital in today's tech world, crucial for electronics, automotive, healthcare, telecom, data centers, and defense. The Semiconductor Industry Association (SIA) reported global sales of $49.1 billion in May 2024, up 19.3% from May 2023. Meanwhile, Statista projects the semiconductor market will reach $607.40 billion in revenue in 2024, with a CAGR of 10.06%.
Concurrently, the semiconductor industry is adopting new fabrication technologies, nanotech, advanced packaging, and materials for enhanced chips. Companies are focusing on high-performance GPUs that drive generative AI and large language models. Hence, the global semiconductor market is forecasted to reach $2.06 trillion by 2032, growing at a CAGR of 14.9%.
Furthermore, investors' interest in semiconductor stocks is evident from the iShares Semiconductor ETF's (SOXX) 63.7% returns over the past nine months.
Considering these conducive trends, let's analyze the fundamental aspects of the three Semiconductor & Wireless Chip picks, beginning with the third choice.
Stock #3: NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, the Netherlands, NXPI offers various semiconductor products. The company's product portfolio includes microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, and security controllers, as well as semiconductor-based environmental and inertial sensors.
On June 5, 2024, NXPI and Vanguard International Semiconductor Corporation announced plans to establish a joint venture, VisionPower Semiconductor Manufacturing Company, to build and operate a 300mm semiconductor wafer manufacturing facility in Singapore. The fab will support 130nm to 40nm mixed-signal, power management, and analog products, with initial production expected in 2027.
On June 4, 2024, NXPI announced a collaboration with ZF Friedrichshafen AG to develop SiC-based traction inverters for electric vehicles, aiming to enhance safety, efficiency, range, and performance. The collaboration utilizes NXPI's GD316x high-voltage isolated gate drivers to improve EV powertrains and support 800-V and SiC power devices.
In terms of the trailing-12-month net income margin, NXPI's 21.24% is 562.1% higher than the 3.21% industry average. Likewise, its 36.15% trailing-12-month EBITDA margin is 260.8% higher than the 10.02% industry average. Additionally, its 28.36% trailing-12-month EBIT margin is 466.4% higher than the 5.01% industry average.
NXPI's revenue for the first quarter that ended March 31, 2024, increased marginally year-over-year to $3.13 billion. The company's non-GAAP gross profit rose marginally from the year-ago value to $1.82 billion.
Also, NXPI's non-GAAP net income attributable to stockholders came in at $840 million and $3.24 per common share, up 0.7% and 1.6% over the prior-year quarter, respectively.
For the quarter ending December 31, 2024, NXPI's EPS and revenue are expected to increase 5.3% and 2.6% year-over-year to $3.91 and $3.51 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 45.4% to close the last trading session at $282.77.
NXPI's POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment and Quality. It is ranked #13 out of 92 stocks in the Semiconductor & Wireless Chip industry. Beyond what we stated above, we also have given NXPI grades for Growth, Value, Momentum, and Stability. Get all the NXPI's ratings here.
Stock #2: Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. It provides complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radio frequency, and embedded memory semiconductors.
In terms of the trailing-12-month EBIT margin, TSM's 41.82% is 735.4% higher than the 5.01% industry average. Similarly, its 14.81% trailing-12-month Return on Total Assets is 688.8% higher than the industry average of 1.88%. Its 38.16% trailing-12-month net income margin is substantially higher than the industry average of 3.21%.
TSM's net revenue for the first quarter that ended March 31, 2024, increased 16.5% year-over-year to NT$592.64 billion ($18.18 billion). Likewise, its gross profit grew 9.8% from the year-ago value to NT$314.51 ($9.65 billion).
For the same quarter, the company's income from operations of NT$249.02 billion ($7.64 billion), up 7.7% over the prior-year quarter. In addition, the company's net income and EPS for the period were NT$225.22 billion ($6.91 billion) and NT$43.48 up 8.8% and 8.9% year-over-year, respectively.
Analysts expect TSM's revenues for the quarter ended June 30, 2024, to increase 30.1% year-over-year to $20.09 billion. Its EPS for the same quarter is expected to increase 24.9% year-over-year to $1.42. It surpassed the consensus estimates in each of the four trailing quarters. The stock has gained 104.8% over the past nine months to close the last trading session at $185.22.
TSM's strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and Quality and a B for Sentiment. In the same industry, it is ranked #11. To access additional grades for TSM's Growth, Value, and Stability ratings, click here.
Stock #1: Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems; Applied Global Services, and Display and Adjacent Markets.
On July 8, 2024, AMAT announced the industry's first use of ruthenium in high-volume production, enabling copper chip wiring to scale to the 2nm node and beyond, reducing resistance by up to 25%.
Additionally, they introduced a new enhanced low-k dielectric material to reduce chip capacitance and strengthen logic and DRAM chips for 3D stacking.
In terms of the trailing-12-month EBITDA margin, AMAT's 30.58% is 205.3% higher than the 10.02% industry average. Likewise, its 17.28% trailing-12-month levered FCF margin is 77.2% higher than the 9.75% industry average. Furthermore, its 22.86% trailing-12-month Return on Total Assets is considerably higher than the 1.88% industry average.
During the second quarter ended April 28, 2024, AMAT's net sales increased marginally year-over-year to $6.65 billion. The company's non-GAAP gross profit rose 1.9% year-over-year to $3.16 billion. Furthermore, the company's non-GAAP net income and EPS came in at $1.74 billion and $2.09, up 3.1% and 4.5% from the prior year's quarter, respectively.
Street expects AMAT's EPS and revenue for the quarter ending July 31, 2024, to increase 6.2% and 3.8% year-over-year to $2.02 and $6.67 billion, respectively. AMAT surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 51.5% year-to-date to close the last trading session at $245.55.
AMAT's bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Sentiment and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #7. To see AMAT's Growth, Value, and Stability ratings, click here.
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TSM shares were trading at $186.30 per share on Tuesday afternoon, up $1.08 (+0.58%). Year-to-date, TSM has gained 80.16%, versus a 19.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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