The extensive usage of semiconductors in a wide range of applications across end-use markets is the primary factor boosting the semiconductor industry's growth. Further, the rapid adoption of advanced technologies and favorable government initiatives will foster the sector’s expansion.
Considering the industry’s bright prospects, fundamentally sound semiconductor stocks Cirrus Logic, Inc. (CRUS), Tower Semiconductor Ltd. (TSEM), and Applied Materials, Inc. (AMAT) could be ideal investments this month for potential gains.
Semiconductors are essential for application in various end-use industries, including electronics, automotive, networking and communications, industrial, data processing, and defense. With the widespread usage of chips in multiple end-use applications, the growth prospective for the semiconductor industry appears promising.
The growing penetration of digital technologies and increasing adoption of several consumer electronics globally are propelling the growth of the semiconductor sector. The consumer electronics market is estimated to reach $5.82 billion by 2033, growing at a CAGR of 5.8% during the forecast period.
The chip industry is experiencing continued month-to-month growth in sales globally. The Semiconductor Industry Association (SIA) announced worldwide semiconductor sales for the month of September 2023 surged 1.9% compared to August 2023. Global semiconductor sales reached $134.70 billion for the third quarter of 2023, up 6.3% from the second quarter of 2023.
In addition, the growing popularity and adoption of advanced technologies such as Artificial Intelligence (AI), the Internet of Things (IoT), Machine Learning (ML), and many more are expected to provide growth opportunities to industry players in the foreseeable years.
The global AI chip market is projected to total $383.70 billion by 2032, expanding at a CAGR of 38.2% from 2023 to 2032.
Supportive government initiatives are further boosting the chip industry’s prospects. The CHIPS and Science Act 2022 by the U.S. government includes $53 billion for chip R&D and manufacturing. The act also provides incentives and tax credits for semiconductor manufacturing companies.
The global semiconductor market is expected to grow at a CAGR of 12.3% during the forecast period (2023-2032), reaching $1.88 trillion by 2032.
Given these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor entity that develops low-power, high-precision mixed-signal processing solutions. It provides audio products, including codec components and boosted amplifiers, standalone digital signal processors, and SoundClear technology. It sells its products through a direct sales force, external sales representatives, and distributors.
On August 2, CRUS introduced its new audio amplifier/codec solution that assists in easing PC manufacturers’ migration to the MIPI SoundWire® interface (1.2.1 specification) for a richer, more immersive audio experience.
In addition to this newly launched audio solution optimized for the PC platform, CRUS collaborates with industry leaders Intel Corporation (INTC) and Microsoft Corporation (MSFT) to help ease the transition to the SoundWire interface and scalable architecture to provide even better audio in next-generation laptop designs.
CRUS’ revenue and EBITDA have grown at respective CAGRs of 12.3% and 14.4% over the past three years. The company’s EBIT has increased 17.0% over the same timeframe, while its total assets have improved at a CAGR of 7.4%.
CRUS reported net sales of $481.06 million for the fiscal 2024 second quarter that ended September 23, 2023. The company’s net income was $75.41 million, or $1.34 per share, respectively. Its total current assets came in at $1.09 billion as of September 23, 2023, compared to $956.57 million as of September 24, 2022.
As per CRUS’ business outlook for the third quarter of fiscal year 2024, revenue is expected to range between $510 million and $570 million. Its gross margin is expected to be between 49% and 51%.
For the fiscal year ending March 2025, analysts expect CRUS’ revenue and EPS to grow 8.8% and 19.4% from the prior year to $1.83 billion and $6.21, respectively. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimate in all four trailing quarters.
CRUS’ stock has gained 1.9% over the past six months and 7.9% year-to-date to close the last trading session at $78.10.
CRUS’ bright prospects are reflected in its POWR Ratings. 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, each weighted to an optimal degree.
The stock has a B grade for Value, Momentum, and Sentiment. Within the Semiconductor & Wireless Chip industry, CRUS is ranked #19 of 92 stocks.
Click here to access additional ratings of CRUS for Growth, Stability, and Quality.
Stock #2: Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry emphasizing specialty process technologies to manufacture analog-intensive mixed-signal semiconductor devices globally. The company serves consumer electronics, personal computers, communications, automotive and industrial markets.
On September 11, TSEM and Fortsense, a leader in LiDAR SPAD technology solutions and ICs, introduced a co-developed advanced 3D imager for LiDAR application based on dToF technology.
The newly developed product, FL6031, is based on Tower’s 65nm Stacked BSI CIS platform with pixel-level hybrid bonding and is designed to address depth sensing applications in automotive, consumer, and industrial markets.
“The collaboration with Fortsense on the development of an optimized 3D imager based on dToF sensor technology is a statement of both parties commitment to drive innovation and deliver exceptional sensors to the 3D imaging market,” said Dr. Avi Strum, Senior Vice President and General Manager of Sensors and Displays Business Unit, Tower Semiconductor.
On September 7, TSEM announced its collaboration with InnoLight Technology, a leader in data center optics, to develop multi-generation high-speed optical transceivers based on Tower’s Silicon Photonics process platform (PH18).
With this strategic partnership, TSEM expects to enable cutting-edge solutions to support the increasing demands of AI, data centers, and next-generation telecom networks.
TSEM’s revenue and EBITDA have grown at respective CAGRs of 6.3% and 18.3% over the past three years. The company’s EBIT has increased 46.6% over the same timeframe, while its net income and EPS have improved at CAGRs of 96.7% and 95.5%, respectively.
In the third quarter ended on September 30, 2023, TSEM reported revenues of $358.17 million. The company’s operating profit increased 357.2% from the year-ago value to $362.16 million. The company’s net profit and EPS were $342.05 million and $3.07, up 394.8% and 395.2% from the previous year’s quarter, respectively.
Furthermore, the company’s current assets stood at $1.72 billion as of September 30, 2023, compared to $1.44 billion as of June 30, 2022.
Street expects TSEM’s EPS for the second quarter (ending June 2024) to increase 3.1% year-over-year to $0.50. Also, the company has topped the consensus EPS estimate in all four trailing quarters, which is remarkable.
Shares of TSEM have surged 13.8% over the past month to close the last trading session at $27.44.
TSEM’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TSEM has an A grade for Momentum and a B for Value, Sentiment, and Quality. It is ranked #11 out of 92 stocks in the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings we’ve stated above, we also have TSEM ratings for Growth and Stability. Get all TSEM ratings here.
Stock #1: Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On December 5, AMAT and CEA-Leti expanded their longstanding collaboration to focus on developing differentiated materials engineering solutions for various specialty semiconductor applications.
The work at the joint lab, which builds upon this successful partnership, aims to advance device innovations for Applied’s customers serving ICAPS markets (IoT, Communication, Automotive, Power, and Sensors).
On December 1, AMAT received validation from the Science Based Targets initiative (SBTi) of its science-based Scope 1, 2, and 3 emissions reduction targets.
Gary Dickerson, President and CEO of Applied Materials said, “SBTi’s validation of our emissions reduction targets reflects Applied Materials’ commitment to minimize our own carbon footprint and to work closely with our suppliers and customers to help them achieve their climate goals.”
During the fourth quarter that ended October 29, 2023, AMAT reported net sales of $6.72 billion. Its adjusted gross profit rose 2.2% from the year-ago value to $3.18 billion. In addition, the company’s adjusted net income and adjusted EPS increased 2.6% and 4.4% year-over-year to $1.79 billion and $2.12, respectively.
Analysts expect AMAT’s EPS for the fiscal year (ending October 2025) to increase 15.9% year-over-year to $8.90. Likewise, the consensus revenue estimate of $28.59 billion for the next year indicates a 9.4% rise year-over-year. Moreover, the company surpassed the consensus EPS and revenue estimate in all four trailing quarters.
Over the past six months, the stock has gained 9.3% and 51.1% year-to-date to close the last trading session at $146.15.
AMAT’s POWR Ratings reflect its robust outlook. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
AMAT has an A grade for Momentum. The stock has a B grade for Quality. It is ranked #10 among 92 stocks in the same industry.
To see the other ratings of AMAT for Value, Growth, Stability, and Sentiment, 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.
AMAT shares rose $0.85 (+0.58%) in premarket trading Wednesday. Year-to-date, AMAT has gained 51.47%, versus a 20.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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