As technological advancements escalate relentlessly, the burgeoning demand for advanced and efficient chips sets the stage for impressive growth. Given this backdrop, investors may wish to consider quality chip stocks QUALCOMM Incorporated (QCOM), Applied Materials, Inc. (AMAT), and Photronics, Inc. (PLAB), demonstrating exceptional resilience.
Semiconductors have emerged as vital elements, shaping the prospects of numerous industries like consumer electronics, healthcare, automotive, telecommunication, data centers, and defense. Its significance is underscored by the historical peaks in their sales witnessed last year, a trend that persisted despite a slump during the latter half of 2022.
The Semiconductor Industry Association (SIA) unveiled that global semiconductor sales reached $44 billion in August 2023, indicating a 1.9% month-over-month increase. While anticipated to experience a temporary dip in sales, the semiconductor industry is projected to embrace augmented expansion over the forthcoming decade. The global semiconductor market is expected to grow at a CAGR of 12.3% to reach $1.88 trillion by 2032.
The rising adoption of AI-powered devices and applications positively impacts the Wireless Chipset market growth. The significant use of AI algorithms and machine learning (ML) techniques across various devices, encompassing smartphones, smart home appliances, wearable technology, and industrial sensors, continues to fuel the surge.
Further enhancing the prospects of the industry are the favorable government policies and funding initiatives. The Biden administration disclosed plans to allocate $238 million through the Defense Department to fortify the semiconductor industry and create eight innovative hubs throughout the United States dedicated to semiconductor development. The funding initiative is intended to strengthen the domestic semiconductor sector, underlining its strategic importance.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks in the Semiconductor & Wireless Chip industry, starting with the third in line.
Stock #3: QUALCOMM Incorporated (QCOM)
QCOM develops and commercializes foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
On October 13, QCOM announced a quarterly dividend of $0.80 per common share, payable to stockholders on December 14. The company has paid dividends for 19 consecutive years – a testament to its consistent capacity for shareholder returns.
Its annualized dividend rate of $3.20 per share translates to a dividend yield of 3.03% on the current share price. Its four-year average yield is 2.31%. QCOM’s dividend payments have grown at CAGRs of 6.9% and 5.4% over the past three and five years, respectively.
On September 11, QCOM announced its agreement with Apple Inc. (AAPL), confirming its position as the key provider of Snapdragon® 5G Modem-RF Systems for AAPL's upcoming smartphone launches planned for 2024, 2025, and 2026. The strategic partnership further solidifies QCOM's longstanding supremacy in the field of 5G technologies, bolsters its market presence, and strengthens its growth trajectory.
QCOM’s trailing-12-month cash from operations of $8.65 billion is significantly higher than the industry average of $60.08 million. Its trailing-12-month ROCE and ROTA of 47.02% and 17.58% are significantly higher than the industry averages of 1.01% and 0.02%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 24.5% and 11.2%, respectively, while its EBITDA grew at 39.3% and 14.7% CAGRs over the same periods.
For the fiscal third quarter that ended June 25, 2023, QCOM’s non-GAAP revenues and non-GAAP operating income stood at $8.44 billion and $2.52 billion, respectively.
For the same quarter, its non-GAAP net income and non-GAAP EPS stood at $2.11 billion and $1.87, respectively. Its total cash and cash equivalents increased 93.2% year-over-year to $6.18 billion.
Street expects QCOM’s revenue and EPS in the fiscal fourth quarter ending September 2023 to come at $8.52 billion and $1.91, respectively.
The stock has gained marginally intraday to close the last trading session at $105.62.
QCOM’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Momentum, Sentiment, and Quality. Within the 91-stock Semiconductor & Wireless Chip industry, it is ranked #16.
To see additional POWR Ratings for Growth and Stability for QCOM, click here.
Stock #2: Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On September 7, AMAT announced a quarterly dividend of $0.32 per share payable on the company’s common stock, payable to the shareholders on December 14. The company paid dividends for 17 consecutive years.
Its annualized dividend rate of $1.28 per share translates to a dividend yield of 0.98% on the current share price. Its four-year average yield is 1%. AMAT’s dividend payments have grown at CAGRs of 10.5% and 14.1% over the past three and five years, respectively.
AMAT’s trailing-12-month net income margin of 24.27% is significantly higher than the industry average of 2.03%. Its trailing-12-month ROCE and ROTA of 47.44% and 21.19% are significantly higher than the industry averages of 1.01% and 0.02%, respectively.
Over the past three and five years, its EPS grew at CAGRs of 30.1% and 19.5%, respectively, while its tangible book value grew at 23% and 28.2% CAGRs over the same periods.
During the fiscal third quarter that ended July 30, 2023, AMAT’s net sales and non-GAAP adjusted gross profit stood at $6.43 billion and $2.98 billion, respectively. Its non-GAAP operating income came at $1.82 billion.
For the same quarter, its non-GAAP adjusted net income and non-GAAP adjusted earnings per share stood at $1.60 billion and $1.90, respectively. Its total cash, cash equivalents, and restricted cash equivalents increased 100.4% year-over-year to $6.13 billion.
Street expects AMAT’s revenue and EPS in the fiscal year ending October 2023 to increase 2.1% and 2.9% year-over-year to $26.32 billion and $7.92, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 34.4% year-to-date to close the last trading session at $130.84. Over the past year, it gained 48.5%.
AMAT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
AMAT has an A grade for Momentum and a B for Quality. Within the same industry, it is ranked #11.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Stability, and Sentiment. Get all ratings of AMAT here.
Stock #1: Photronics, Inc. (PLAB)
PLAB manufactures integrated circuit (IC) and flat panel display (FPD) photomasks. The company operates approximately 11 manufacturing facilities, out of which three are located in Taiwan, one in Korea, three in the United States, two in Europe, and two in China.
PLAB’s trailing-12-month net income margin of 13.48% is 562.8% higher than the industry average of 2.03%. Its trailing-12-month ROCE and ROTA of 13.02% and 7.84% are significantly higher than the industry averages of 1.01% and 0.02%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 12.4% and 11.3%, respectively, while its total assets grew at 7.9% and 6.7% CAGRs over the same periods.
For the fiscal third quarter that ended July 30, 2023, PLAB’s revenue stood at $224.21 million, up 1.9% year-over-year, while its gross profit grew 3.5% from the prior-year quarter to $86.80 million.
For the same quarter, its non-GAAP net income and non-GAAP earnings per share increased 9.7% and 8.5% year-over-year to $31.64 million and $0.51, respectively. As of July 30, 2023, PLAB’s net cash stood at $421.77 million, compared to $323.52 million as of July 31, 2022.
Street expects PLAB’s revenue in the fiscal fourth quarter ending October 2023 to increase 6.5% year-over-year to $224 million. Its EPS is expected to come at $0.53. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 32.2% over the past six months to close the last trading session at $18.75. Over the past year, it gained 14.2%.
PLAB’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
PLAB has an A grade for Momentum and a B for Value and Quality. It is ranked #6 within the Semiconductor & Wireless Chip industry.
Click here for the additional POWR Ratings for PLAB (Growth, Stability, and Sentiment).
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QCOM shares were trading at $106.90 per share on Friday afternoon, up $1.28 (+1.21%). Year-to-date, QCOM has declined -0.79%, versus a 8.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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