The demand for chips has increased dramatically in recent years as their applications have grown across a variety of industries. So, you could consider quality chip stocks, Trio-Tech International (TRT), Applied Materials, Inc. (AMAT), and Amkor Technology, Inc. (AMKR), which offer investment potential.
The extensive usage of chips in a wide range of end-use applications such as electronics, industrial equipment, automotive, networking and communications, and data processing is the primary factor that boosts the semiconductor market’s growth. The global semiconductor market is expected to grow at a CAGR of 7.6% to $1.14 trillion by 2033.
Besides, the Semiconductor Industry Association (SIA) announced that global semiconductor sales in February 2024 hit $46.2 billion, marking a 16.3% surge from February 2023 and the largest since May 2022.
Moreover, the rising penetration of digital technologies and the rising adoption of various consumer electronics worldwide are fostering the industry’s expansion. The global graphics processing unit (GPU) market is predicted to grow rapidly due to rising demand for high-performance computing, IoT trends, and sophisticated technologies such as AR, VR, and AI.
The global GPU market is expected to reach $110.6 billion by 2030, growing at a 22.5% CAGR. Furthermore, investors’ interest in chip stocks is evident from the VanEck Semiconductor ETF’s (SMH) 73.2% returns over the past year.
Considering these factors, let’s analyze the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Trio-Tech International (TRT)
TRT and its subsidiaries offer manufacturing, testing, and distribution services to the semiconductor industry. The company operates through four segments: Manufacturing; Testing Services; Distribution; and Real Estate.
TRT’s trailing-12-month EBITDA margin of 15.81% is 61.6% higher than the 4.87% industry average. Its trailing-12-month levered FCF margin of 16.66% is 72.2% higher than the industry average of 9.67%. Also, the stock’s 0.89x trailing-12-month asset turnover ratio is 44.9% higher than the 0.61x industry average.
For the fiscal 2024 second quarter that ended December 31, 2023, TRT reported revenues of $12.20 million. Its net income and EPS came in at $486 thousand and $0.12, respectively. In addition, as of December 31, 2023, the company’s cash and cash equivalents stood at $10.97 million, compared to $7.58 million as of June 30, 2023.
TRT’s shares have gained 42.9% over the past year to close the last trading session at $6.20.
TRT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating 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.
TRT has an A grade for Momentum and Value and a B for Sentiment. It is ranked #15 out of 91 stocks in the Semiconductor & Wireless Chip industry.
Click here to see the additional POWR Ratings for TRT (Stability, Growth, and Quality).
Stock #2: Applied Materials, Inc. (AMAT)
AMAT engages in the provision of 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 March 11, 2024, AMAT approved a 25% increase in the quarterly cash dividend from $0.32 to $0.40 per share, payable on June 13, 2024. AMAT pays an annual dividend of $1.60, which translates to a yield of 0.81% on the current market price, higher than its four-year average dividend yield of 0.90%.
On February 26, 2024, AMAT introduced a portfolio of products and solutions designed to address the patterning requirements of chips in the “angstrom era.”
As chipmakers transition to process nodes at 2nm and below, they increasingly benefit from new materials engineering and metrology techniques that help overcome EUV and High-NA EUV patterning challenges, including line edge roughness, tip-to-tip spacing limitations, bridge defects, and edge placement errors.
AMAT’s trailing-12-month EBITDA margin of 30.72% is 213.9% higher than the industry average of 9.79%. Its trailing-12-month EBIT margin of 28.89% is 501.7% higher than the industry average of 4.80%. Likewise, its trailing-12-month net income margin of 27.03% is 963.3% higher than the industry average of 2.54%.
For the first quarter ended January 28, 2024, AMAT reported net revenues of $6.71 billion. Its non-GAAP gross profit was $3.21 billion, a 1.9% year-over-year increase. Its non-GAAP net income and non-GAAP EPS rose 3.4% and 4.9% year-over-year to $1.78 billion and $2.13, respectively. Its free cash flow increased 6.1% from the prior year’s period to $2.10 billion.
Analysts expect AMAT’s revenue for the third quarter (ending July 2024) to increase 2.3% year-over-year to $6.58 billion. Its EPS is expected to grow 3.3% year-over-year to $1.96 for the same quarter. Also, the company topped the consensus EPS and revenue estimates in each of the four trailing quarters, which is remarkable.
Shares of AMAT have surged 75.8% over the past year to close the last trading session at $198.65.
AMAT’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Quality and Sentiment. The stock is ranked #9 in the same industry.
Beyond what is stated above, we’ve also rated for Growth, Value, and Stability. Get all AMAT ratings here.
Stock #1: Amkor Technology, Inc. (AMKR)
AMKR offers outsourced semiconductor packaging and test services internationally. It offers turnkey packaging and test services, flip-chip scale package products, flip-chip stacked chip scale packages, flip-chip ball grid array packages, and memory products.
On April 8, 2024, AMKR and Infineon Technologies AG (IFNNY) entered into a multi-year partnership to operate a dedicated packaging and test center at AMKR’s manufacturing site in Porto, whose operations are expected to commence in the first half of 2025.
The long-term agreement will further strengthen the companies’ partnership and complement AMKR’s operations, enhancing supply chain resiliency for advanced products supporting automotive and industrial end markets.
On January 16, AMKR and GlobalFoundries Inc (GFS) announced their strategic partnership to strengthen the European Union automotive supply chain and expand services for global customers.
AMKR’s extensive global footprint and solid European presence combined with GFS’ tools, processes, and expertise will enable the Porto site to help the European Union pursue its goals of ensuring supply chain stability and delivering the next-generation automotive and other critical chip solutions. This partnership will benefit both companies significantly.
In terms of the trailing-12-month EBITDA margin, AMKR’s 17.09% is 74.6% higher than the 9.79% industry average. Likewise, its 7.41% trailing-12-month EBIT is 54.3% higher than the 4.80% industry average.
For the first quarter, which ended on March 31, 2024, AMKR reported net sales of $1.37 billion, and its operating income increased 5.8% year-over-year to $73 million. In addition, net income attributable to Amkor and EPS were $59 million and $0.24, up 31.1% and 33.3% year-over-year, respectively. Its EBITDA rose 1.7% from the prior year’s quarter to $233 million.
Street expects AMKR’s revenue for the third quarter (ending September 2024) to increase 3.2% year-over-year to $1.88 billion, and its EPS for the same period is expected to grow 17.9% year-over-year to $0.64. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock gained 58.3% over the past six months to close the last trading session at $32.35.
AMKR’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.
The stock has an A grade for Momentum and Sentiment and a B for Value. It is ranked #5 in the same industry.
To access AMKR’s additional ratings for Stability, Quality, and Growth, Click here.
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TRT shares were trading at $6.34 per share on Wednesday morning, up $0.14 (+2.26%). Year-to-date, TRT has gained 25.05%, versus a 5.54% 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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