Despite encountering numerous challenges in the past year, the semiconductor industry is expected to stage a robust comeback this year, fueled by strong demand and substantial investments.
With this in mind, I have highlighted the fundamentals of three solid chip stocks, Qorvo, Inc. (QRVO), Broadcom Inc. (AVGO), and United Microelectronics Corporation (UMC), which are well-equipped to capitalize on the prevailing industry tailwinds.
By the conclusion of 2023, the semiconductor industry found itself grappling with a substantial decline in revenue. Despite the heightened demand for chips that support Artificial Intelligence (AI) workloads, like Graphics Processing Units (GPUs), the sector faced challenges stemming from subdued demand from smartphone and PC customers.
Furthermore, weaknesses in data center/hyperscaler spending played an additional role in contributing to the downturn in revenue experienced last year. Nevertheless, the latest forecast from Gartner reveals a 16.8% growth in global semiconductor revenue in 2024, reaching a total of $624 billion, driven by double-digit growth in the memory market.
Meanwhile, World Semiconductor Trade Statistics (WSTS) forecasts the semiconductor industry’s global sales to climb to $588.40 billion, marking a 13.1% year-over-year increase this year.
On top of it, the semiconductor industry's outlook is further reinforced by government initiatives such as the CHIPS and Science Act. This legislation earmarks approximately $53 billion to advance semiconductor manufacturing, research, and workforce development in the United States.
In light of the solid projections for global semiconductor sales this year, coupled with government support, investors could consider buying the shares of QRVO, AVGO, and UMC for potential gains.
With that being said, let’s dive deeper into the fundamentals of the featured Semiconductor & Wireless Chip stocks, beginning with number three.
Stock #3: Qorvo, Inc. (QRVO)
QRVO engages in the development and commercialization of technologies and products for wireless, wired, and power markets. It operates through three segments: High Performance Analog (HPA); Connectivity and Sensors Group (CSG); and Advanced Cellular Group (ACG).
QRVO’s trailing-12-month EBITDA margin of 11.59% is 23.1% higher than the industry average of 9.42%. Likewise, its trailing-12-month CAPEX/Sales of 4.36% is 84.4% higher than the 2.37% industry average. Furthermore, the stock’s $7.25 trailing-12-month cash per share is 277.1% higher than the $1.92 industry average.
In the fiscal 2024 second quarter, which ended on September 30, 2023, QRVO’s revenue amounted to $1.10 billion. During the same period, the company’s non-GAAP net income came in at $235.51 million and $2.39 per share, respectively. Also, its total current assets stood at $2.26 billion, up 11.5% compared to $2.03 billion as of April 1, 2023.
The consensus EPS estimate of $1.66 for the fiscal third quarter (ended December 2023) reflects a 120.9% year-over-year improvement. The consensus revenue estimate of $1 billion for the same period indicates a 34.9% year-over-year rise.
Moreover, the company has an excellent surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.
Over the past three months, the stock has surged 14.5% to close the last trading session at $108.91.
QRVO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, 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 Growth, Momentum, and Sentiment. In the 91-stock Semiconductor & Wireless Chip industry, it is ranked #22. Click here to see QRVO’s ratings for Value, Stability, and Quality.
Stock #2: Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices and products worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software.
On December 29, 2023, AVGO paid its shareholders a quarterly dividend of $5.25 per share. The company’s annual dividend of $21 translates to a 1.93% yield on the prevailing prices, while its four-year average dividend yield is 3.01%.
Its dividend payouts have grown at CAGRs of 12.6% and 19.3% over the past three and five years, respectively. Also, AVGO has a record of 13 years of consecutive dividend growth.
On November 22, 2023, AVGO finalized the acquisition of VMware, Inc. Following the completion, VMware will continue delivering a diverse range of services to enhance both cloud and edge environments within AVGO. This strategic acquisition further reinforces AVGO's status as a top-tier infrastructure technology company.
In terms of the trailing-12-month EBIT margin, AVGO’s 45.94% is 833.1% higher than the 4.92% industry average. Likewise, its 56.40% trailing-12-month EBITDA margin is 499.1% higher than the 9.42% industry average. Additionally, its 39.31% trailing-12-month levered FCF margin is 334.2% higher than the 8.65% industry average.
For the fiscal fourth quarter, which ended October 29, 2023, AVGO’s net revenue increased 4.1% year-over-year to $9.30 billion, while its non-GAAP operating income rose 4.5% from the prior-year quarter to $5.75 billion.
The company’s non-GAAP net income and non-GAAP EPS grew 5.9% and 5.8% from the year-ago value to $4.81 billion and $11.06, respectively. In addition, its adjusted EBITDA amounted to $6.05 billion, up 5.7% year-over-year.
Analysts predict AVGO’s revenue for the fiscal 2024 first quarter (ending January 2024) to increase 31% year-over-year to $11.68 billion, while its EPS for the same period is expected to improve marginally year-over-year to $10.40.
Moreover, the company topped its EPS and revenue estimates in each of the trailing four quarters, which is impressive.
AVGO’s shares have soared 29.9% over the past three months to close the last trading session at $1,085.38.
AVGO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Momentum. Within the same industry, it is ranked #20. Click here to see the other ratings of AVGO for Growth, Value, Stability, and Sentiment.
Stock #1: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services.
On December 11, 2023, UMC announced its 16th consecutive year of inclusion in the Dow Jones Sustainability Indices (DJSI). UMC has consistently secured the top ranking among its semiconductor foundry counterparts in the DJSI for multiple years, showcasing a noteworthy achievement in corporate sustainability performance.
The company also earned an impressive AA rating in the MSCI ESG Ratings, reflecting widespread international recognition of UMC's sustainable capabilities.
On October 31, 2023, UMC launched the Wafer-to-Wafer (W2W) 3D IC project in collaboration with key partners, including Winbond, Faraday, ASE, and Cadence. This initiative is designed to expedite the production of 3D products for customers, providing a comprehensive solution for integrating memory and processors using silicon stacking technology.
The project addresses the increasing need for efficient computing at the device level, particularly as AI extends its influence from the cloud to the edge.
In terms of the trailing-12-month EBIT margin, UMC’s 29.25% is 494% higher than the 4.92% industry average. Likewise, its 45.31% trailing-12-month EBITDA margin is 381.3% higher than the 9.42% industry average. Furthermore, its 29.37% trailing-12-month net income margin is significantly higher than the 2.36% industry average.
In the fiscal third quarter, which ended on September 30, 2023, UMC’s operating revenues and gross profit amounted to N$57.07 billion ($1.85 billion) and N$20.46 billion ($662.87 million), respectively.
During the same quarter, the company’s attributable net income came in at N$15.97 billion ($517.40 million). Moreover, its total current liabilities stood at N$92.07 billion ($2.98 billion), declining 14.7% compared to N$108.01 billion ($3.49 billion) as of September 30, 2022.
Street expects UMC’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to be $1.74 billion and $0.16, respectively. Additionally, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is promising.
The stock has surged 17.8% over the past three months to close the last trading session at $8.28.
It’s no surprise that UMC has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Value and Quality. Out of 91 stocks in the same industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have UMC’s ratings for Growth, Stability, and Sentiment. Get all UMC 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.
AVGO shares were trading at $1,062.59 per share on Wednesday afternoon, down $22.79 (-2.10%). Year-to-date, AVGO has declined -4.81%, versus a -1.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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