Despite the short-term slowdown, the semiconductor industry’s long-term growth prospects remain bright. Therefore, investors looking for quality chip stocks could add Microchip Technology Incorporated (MCHP), Diodes Incorporated (DIOD), and Everspin Technologies, Inc. (MRAM) to their watchlists.
Earlier this year, the Biden-Harris Administration announced the first CHIPS for America funding opportunity to reinvigorate the domestic semiconductor industry. The Bipartisan CHIPS and Science Act includes $39 billion in semiconductor incentives.
Secretary of Commerce Gina M. Raimondo said, “The CHIPS and Science Act presents a historic opportunity to unleash the next generation of American innovation, protect our national security, and preserve our global economic competitiveness.”
The semiconductor industry’s end markets include automotive, consumer electronics, telecommunication, and industrial equipment markets.
Moreover, the global semiconductors market is growing amid the increasing integration of advanced systems such as collision warning systems, smart cameras, and independent braking systems, innovations in the automotive sector, and the growing adoption of semiconductor ICs in automobiles.
The global semiconductor market is projected to reach $1.38 trillion in 2029, exhibiting a CAGR of 12.2%.
Let’s discuss the stocks mentioned above in detail:
Microchip Technology Incorporated (MCHP)
MCHP develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.
On May 4, 2023, MCHP declared a quarterly common dividend of $0.38 per share, payable on June 5, 2023.
MCHP pays a $1.53 per share dividend annually, which translates to a 2% yield on the current price. Its dividend payments have grown at a CAGR of 19.9% and 11.8% over the past three and five years. The company has a four-year average dividend yield of 1.39%.
Its trailing-12-month gross profit margin of 67.52% is 37.1% higher than the 49.24% industry average. Its trailing-12-month net income margin of 26.52% is significantly higher than the 2.39% industry average.
During the fiscal fourth quarter ended March 31, 2023, MCHP’s net sales increased 21.1% year-over-year to $2.23 billion. Adjusted net income increased 11.9% year-over-year to $907.8 million, while its adjusted net income per common share increased 21.5% year-over-year to $1.64.
MCHP’s revenue is expected to increase 16.6% year-over-year to $2.29 billion for the fiscal first quarter ending June 2023. Its EPS is expected to increase 19.7% year-over-year to $1.64 for the same quarter. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of MCHP have gained 18.4% over the past year to close the last trading session at $77.54.
MCHP’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.
The stock has a B grade for Momentum and Quality. It is ranked #12 out of 91 stocks in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we’ve also rated MCHP for Growth, Value, Sentiment, and Stability. Get all MCHP ratings here.
Diodes Incorporated (DIOD)
DIOD engages in the manufacture and supply of application-specific standard products in the broad discrete, logic, analog, and mixed-signal semiconductor markets worldwide.
Its trailing-12-month EBITDA margin of 26.75% is 200.1% higher than the 8.92% industry average. Its trailing-12-month net income margin of 16.61% is 595.7% higher than the 2.39% industry average.
DIOD’s net sales came in at $467.24 million in the fiscal first quarter that ended March 31, 2023. Its non-GAAP net income came in at $73.45. Its non-GAAP earnings per share came in at $1.59.
Street expects DIOD’s revenue for the fiscal second quarter ending June 2023 to be $467.12 million. Its EPS is expected to come in at $1.60 for the same quarter. It has surpassed EPS estimates in each of the trailing four quarters.
The stock has gained 27.8% over the past year to close the last trading session at $93.83.
DIOD’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
DIOD has a B grade for Value and Momentum. It is ranked #16 in the same industry.
Click here to see the additional POWR Ratings for DIOD (Growth, Stability, Quality, and Sentiment).
Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells magnetoresistive random access memory (MRAM) products in the United States, Hong Kong, Japan, China, Canada, Germany, and internationally.
Its trailing-12-month EBITDA margin of 9.85% is 10.5% higher than the 8.92% industry average. Its trailing-12-month net income margin of 8.19% is 243.2% higher than the 2.39% industry average.
MRAM’s total revenue increased 3.5% year over year to $14.85 million in the first quarter that ended March 31, 2023. Also, its gross profit increased 1.3% year-over-year to $8.43 million, and net income per share came in at $0.04.
MRAM’s revenue is expected to increase 2% year-over-year to $15 million for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to be $0.08. Also, the company has surpassed revenue and EPS estimates in each of the trailing four quarters.
MRAM gained 40.7% year-to-date to close its last trading session at $7.82.
MRAM’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
MRAM also has an A grade for Sentiment and a B in Value and Momentum. It is ranked #8 in the same industry.
For additional ratings for MRAM’s Growth, Stability, and Quality, click here.
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MCHP shares were trading at $78.16 per share on Friday morning, down $0.14 (-0.18%). Year-to-date, MCHP has gained 11.73%, versus a 10.33% 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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