The chip industry is expected to grow rapidly due to increasing demand for consumer electronics, the ever-rising need for data processing, the adoption of advanced technologies like artificial intelligence and the Internet of Things, and increased digitalization initiatives across different sectors.
Given the industry’s solid growth prospects, investors could consider buying fundamentally strong chip stocks: Trio-Tech International (TRT), United Microelectronics Corporation (UMC), and Everspin Technologies, Inc. (MRAM). These stocks are currently trading under $10.
After facing the challenges of weaker demand and inventory corrections in the memory and nonmemory markets in 2023, the semiconductor industry is set to recover strongly this year. The growing integration of Generative AI accelerator chips, PC and smartphone sales recovery, smart manufacturing trends, and demand from the automobile, defense, and aerospace sectors will drive growth.
The Semiconductor Industry Association (SIA) announced that global semiconductor industry sales totaled $46.20 billion in February 2024, up 16.3% year-over-year. The growing popularity of AI-powered devices and applications across multiple industries will propel the AI chip industry forward. According to DataHorizon Research's report, the AI chip market is expected to grow at a CAGR of 40.6% until 2032.
Gartner forecasts global semiconductor revenue to grow 16.8% in 2024 to reach $624 billion. Investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 27.6% returns over the past six months.
In light of these encouraging trends, let’s examine the fundamentals of the three Semiconductor & Wireless Chip stock picks, 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 Return on Total Assets of 1.91% is 43.4% higher than the industry average of 1.34%. Its 15.81% trailing-12-month EBITDA margin is 62.9% higher than the 9.71% industry average. Also, its 0.89x trailing-12-month asset turnover ratio is 45.7% higher than the 0.61x industry average.
TRT reported revenues for the second quarter that ended December 31, 2023, at $12.20 million. Likewise, the company’s net income attributable to TRT and EPS came in at $507 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.
Over the past year, the stock has gained 44.9% to close the last trading session at $6.20.
TRT’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TRT has an A grade for Value and Momentum and a B for Sentiment. Within the Semiconductor & Wireless Chip industry, it is ranked #15 out of 91 stocks. To see the additional ratings of TRT for Growth, Stability, and Quality, click here.
Stock #2: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It serves fabless design companies and integrated device manufacturers.
UMC’s trailing-12-month EBIT margin of 24.59% is 419.5% higher than the 4.73% industry average. Its trailing-12-month EBITDA margin of 42.12% is 333.8% higher than the 9.71% industry average. Additionally, its 7.96% trailing-12-month Return on Total Capital is 244% higher than the 2.31% industry average.
For the fiscal first quarter that ended March 31, 2024, UMC’s operating revenue rose marginally year-over-year to NT$54.63 billion ($1.68 billion). The company’s gross profit came in at NT$16.90 billion ($518.45 million). Its net income and EPS amounted to NT$10.46 billion ($320.78 million) and NT$0.84 per share, respectively.
As of March 31, 2024, UMC’s total current liabilities stood at NT$88.40 billion ($2.71 billion), compared to NT$105.89 billion ($3.25 billion) as of March 31, 2023.
For the quarter ending September 30, 2024, UMC’s revenue is expected to increase 7% year-over-year to $1.88 billion. Its EPS for the quarter ending December 31, 2024, is expected to grow 17.2% year-over-year to $0.20. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 3.7% to close the last trading session at $7.55.
UMC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #12 in the same industry. It has an A grade for Momentum and a B for Value and Quality. Click here to see the UMC’s Growth, Stability, and Sentiment ratings.
Stock #1: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells magnetoresistive random access memory (MRAM) products, including Toggle MRAM, spin-transfer torque MRAM, and tunnel magnetoresistance sensor products. The company serves original equipment, contract, and design manufacturers.
MRAM’s trailing-12-month EBIT margin of 9.23% is 94.4% higher than the industry average of 4.73%. Its 19.55% trailing-12-month Return on Common Equity is 470.9% higher than the 3.42% industry average. Additionally, its 14.20% trailing-12-month net income margin is 453.3% higher than the 2.57% industry average.
In the first quarter that ended March 31, 2024, MRAM’s revenue came in at $14.43 million. Its adjusted EBITDA stood at $1.91 million. As of March 31, 2024, the company’s total current liabilities stood at $5.90 million, compared to $8.78 million as of December 31, 2023. In addition, its total current liabilities stood at $10.38 million, compared to $13.38 million for the same period.
Analysts expect MRAM’s revenue for the fiscal year ending December 31, 2025, to increase 16.6% year-over-year to $70 million. It surpassed EPS estimates in three of the trailing four quarters. MRAM’s shares have gained 18% over the past year, closing the last trading session at $7.49.
It’s no surprise that MRAM has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and Sentiment and a B for Momentum and Quality. It is ranked first in the Semiconductor & Wireless Chip industry. Beyond what is stated above, we’ve also rated MRAM for Growth and Stability. Get all MRAM ratings here.
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UMC shares were trading at $7.79 per share on Thursday morning, up $0.24 (+3.18%). Year-to-date, UMC has declined -7.92%, versus a 6.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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