The semiconductor industry is gaining momentum due to its pivotal role in powering AI and other advanced technologies. Semiconductors help drive modern computing devices and systems. Interestingly, advanced technologies have helped develop cutting-edge chips with high precision and versatility to help power complex applications and meet greater processing needs.
Given this backdrop, investors could consider buying fundamentally strong semiconductor stocks Advanced Micro Devices, Inc. (AMD), Micron Technology, Inc. (MU), and NVIDIA Corporation (NVDA), powering the tech revolution.
Semiconductors have become essential for driving advanced technologies like machine learning, edge computing, quantum computing, deep learning, and neural networks.
The semiconductor industry is witnessing a surge in demand thanks to the rise of artificial intelligence (AI) and high-performance computing (HPC). Since these technologies need greater processing power to work efficiently, companies are developing AI chips that power AI algorithms and applications to operate efficiently by processing vast amounts of data quickly and accurately.
Advanced chips also help enable applications such as augmented and virtual reality and on-device artificial intelligence. These advanced chips excel at tasks such as image recognition and natural language processing, providing high accuracy for high-end applications. The global semiconductor market will reach $2.06 trillion by 2032, growing at a 14.9% CAGR.
Considering these factors, let’s examine the fundamentals of the Semiconductor & Wireless Chip stock picks, beginning with the third choice.
Stock #3: Advanced Micro Devices, Inc. (AMD)
AMD operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. It offers x86 microprocessors and graphics processing units (GPUs) as accelerated processing units, chipsets, data centers, and professional GPUs, and more.
On June 2, 2024, AMD announced the introduction of AMD Ryzen AI 300 Series processors with the world’s most powerful Neural Processing Unit for next-gen AI PCs. It also introduced next-gen AMD Ryzen 9000 Series processors for desktops, further solidifying its position as a leader in performance and efficiency for gamers, content creators, and prosumers.
These new processors add to a broad portfolio of products powering AI in the cloud, edge, client, and beyond.
On May 7, 2024, AMD announced that Optiver, a leading global market maker trading on 100+ exchanges, used a broad range of AMD high-performance compute engines to further its mission of improving financial markets by building a modern infrastructure that serves as the organization's backbone.
AMD’s trailing-12-month CAPEX / Sales of 2.32% is 2% higher than the industry average of 2.28%. Similarly, its trailing-12-month EBITDA margin and net income margin of 16.83% and 4.89% are 74.1% and 83.5% higher than the industry averages of 9.67% and 2.67%, respectively.
AMD’s net revenue for the fiscal first quarter that ended March 30, 2024, increased 2.2% year-over-year to $5.47 billion. In addition, its free cash flow grew 15.5% from the year-ago quarter to $379 million. Its non-GAAP net income stood at $1.01 billion, up 4.4% from the year-ago quarter. Also, its non-GAAP earnings per share rose 3.3% over the prior-year quarter to $0.62.
Analysts expect AMD’s revenue and EPS for the quarter ending June 30, 2024, to increase 6.8% and 17% year-over-year to $5.72 billion and $0.68, respectively. The company surpassed the Street revenue estimates in each of the trailing four quarters, which is impressive. Over the past nine months, the stock has gained 51.1%, closing the last trading session at $160.34.
AMD has an A grade for Growth, as reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Within the Semiconductor & Wireless Chip industry, it is ranked #72 out of 92 stocks. Click here for the additional POWR Ratings of AMD (Value, Momentum, Stability, Sentiment, and Quality).
Stock #2: Micron Technology, Inc. (MU)
MU designs, develops, manufactures, and sells memory and storage products worldwide. The company operates through four segments: the Compute and Networking Business Unit, the Mobile Business Unit, the Embedded Business Unit, and the Storage Business Unit.
On May 7, 2024, MU announced the availability of Crucial LPCAMM2, the disruptive next-generation laptop memory form factor that featured LPDDR5X mobile memory to level up laptop performance for professionals and creators. LPCAMM2 delivered higher bandwidth and dual-channel support with a single module.
It is a high-performance memory solution for handling AI PCs and complex workloads and is compatible with the Lenovo ThinkPad P1 Gen 7 mobile workstations.
MU’s trailing-12-month CAPEX / Sales of 33.87% is considerably higher than the industry average of 2.28%. Likewise, its trailing-12-month EBITDA margin of 20% is 106.9% higher than the industry average of 9.67%.
For the fiscal second quarter that ended February 29, 2024, MU’s revenue stood at $5.82 billion, up 57.7% year-over-year. Its non-GAAP operating income amounted to $204 million, compared to a non-GAAP operating loss of $2.08 billion in the prior year quarter.
For the same quarter, its non-GAAP net income and earnings per share stood at $476 million and $0.42, respectively, compared to non-GAAP net loss and loss per share of $2.08 billion and $1.91 in the year-ago quarter.
Street expects MU’s fiscal 2025 EPS to increase 917.3% year-over-year to $8.18. Its revenue for the quarter that ended May 31, 2024, is expected to rise 76.9% year-over-year to $6.64 billion. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters. MU has gained 106.1% over the past year, closing the last trading session at $134.82.
MU has an A grade for Sentiment and a B for Growth. It is ranked #66 in the same industry. Get MU’s Value, Momentum, Stability, and Quality ratings here.
Stock #1: NVIDIA Corporation (NVDA)
NVDA provides graphics, compute, and networking solutions in the U.S., Taiwan, China, Hong Kong, and internationally. The company has two segments: Compute & Networking and Graphics.
On June 2, 2024, NVDA announced the general software availability of NVIDIA AI Enterprise-IGX with NVIDIA Holoscan on the NVIDIA IGX platform. This will address the increasing need for real-time AI computing at the industrial edge by empowering solution providers to develop and deploy edge AI solutions faster with enterprise-grade software and support.
On June 2, 2024, NVDA announced NVIDIA RTX technology to power AI assistants and digital humans running GeForce RTX AI laptops. It unveiled Project G-Assist, an RTX-powered AI assistant technology demo that provides context-aware help for PC games and apps.
NVDA also introduced the first PC-based NVIDIA NIM inference microservices for the NVIDIA ACE digital human platform. These technologies are enabled by the NVIDIA RTX AI Toolkit, which aids developers in optimizing and deploying large generative AI models on Windows PCs.
NVDA’s trailing-12-month asset turnover ratio of 1.31x is 113% higher than the industry average of 0.62x. Its trailing-12-month Return on Total Capital and Return on Total Assets of 61.54% and 55.27% are considerably higher than the industry averages of 2.58% and 1.66%, respectively.
NVDA’s revenue for the fiscal first quarter that ended April 28, 2024, amounted to $26.04 billion, up 262.1% year-over-year. Its non-GAAP gross profit grew 328.2% from the year-ago quarter to $20.56 billion. Moreover, its non-GAAP net income stood at $15.24 billion and $6.12 per share, up 461.7% and 461.5% over the prior-year quarter.
For fiscal 2025, NVDA’s revenue and EPS are expected to increase 97% and 109.1% year-over-year to $119.98 billion and $2.71, respectively. It surpassed consensus revenue and EPS estimates in each of the trailing four quarters. The stock has gained 214.1% over the past year to close the last trading session at $121.79.
NVDA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. It is ranked first in the Semiconductor & Wireless Chip industry. Click here to see NVDA’s Momentum, Stability, and Sentiment rating.
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.
NVDA shares were trading at $120.26 per share on Tuesday morning, down $1.52 (-1.25%). Year-to-date, NVDA has gained 142.86%, versus a 12.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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