The growing hype around AI and other emerging technologies has boosted semiconductor demand. So, I think quality chip stocks QUALCOMM Incorporated (QCOM), Analog Devices, Inc. (ADI), and MACOM Technology Solutions Holdings, Inc. (MTSI) might be solid buys now.
Increasing demand for faster and advanced memory chips in industrial applications will likely boost the chip market. Also, the increasing number of personal computer manufacturers and rising investments in R&D activities are also expected to increase demand.
The global semiconductor market is projected to grow at a CAGR of 12.2% to $1.38 trillion by 2029.
Moreover, in February 2023, the Biden-Harris Administration launched the first CHIPS for America funding opportunity to restore U.S. leadership in semiconductor manufacturing, create good-paying jobs, and advance national security.
This initiative is part of a $50 billion effort by the Department of Commerce to revitalize the U.S. semiconductor industry, with $39 billion specifically designated for semiconductor incentives. The initiative represents a significant investment in the U.S. semiconductor industry and has the potential to drive growth and technological advancement in this critical sector.
Additionally, the rise of electric vehicles should also bode well for the chipmakers. With countries prioritizing cleaner and sustainable technologies, the global electric vehicle (EV) market is expected to surpass $980 billion by 2028, growing at a CAGR of 24.5% between 2022 to 2028.
Let’s take a look at the stocks mentioned above:
QUALCOMM Incorporated (QCOM)
QCOM engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.
QCOM’s trailing-12-month EBITDA margin of 37.93% is 328.5% higher than the 8.85% industry average. Its trailing-12-month gross profit margin of 57.22% is 13% higher than the 50.63% industry average.
On April 12, 2023, QCOM announced a quarterly cash dividend of $0.80 per common share, payable on June 22, 2023.
QCOM pays $3.20 annually as dividends which translates to a yield of 2.72% at the current price. Its four-year average dividend yield is 2.37%. Its dividend payouts have grown at a 6.6% CAGR over the past three years.
QCOM’s total revenues came in at $9.46 billion in the fiscal first quarter that ended December 25, 2022, and its net income came in at $2.24 billion. It reported a net income per share of $1.98.
QCOM’s revenue is expected to come in at $9.11 billion for the fiscal second quarter that ended March 2023. The company’s EPS for the same quarter is expected to be $2.16.
QCOM has gained 6.7% year-to-date to close its last trading session at $117.35.
QCOM’s POWR Ratings reflect its promising outlook. 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, with each factor weighted to an optimal degree.
QCOM also has a B grade for Momentum, Value, Sentiment, and Quality. It is ranked #30 out of 91 stocks in the B-rated Semiconductor & Wireless Chip industry.
For additional ratings for QCOM’s Growth and Stability, click here.
Analog Devices, Inc. (ADI)
ADI designs, manufactures, tests, and markets integrated circuits (ICs), software, and subsystems that leverage analog, mixed-signal, and digital signal processing technologies.
On March 8, ADI announced that Envision Energy, the subsidiary of Envision Group providing world-leading green technology, is adopting ADI’s MEMS sensor technology in the company’s new generation of smart wind turbines.
Leveraging new capabilities offered by advanced MEMS sensors adds intelligence at the edge for real-time monitoring, further advancing the green energy revolution.
On February 27, ADI announced that it had launched a fully integrated open radio unit reference design platform that enables radio designers to reduce risk and time to market.
The platform leverages industry-leading technologies that drive advanced 4G and 5G RU requirements and includes support for all sub 6GHz band and power variants, including multi-band applications.
ADI’s trailing-12-month EBITDA margin of 52.24% is 491.3% higher than the 8.83% industry average. Its trailing-12-month gross profit margin of 65.62% is 29.8% higher than the 50.56% industry average.
ADI pays $3.44 annually as dividends which translates to a yield of 1.85% at the current price. Its 4-year average dividend yield is 1.82%. Its dividend payouts have grown at 11.9% CAGR over the past three years.
ADI’s revenue increased 21.1% year-over-year to $3.25 billion in the fiscal first quarter, which ended January 28, 2023. Its adjusted operating income increased 35.1% year-over-year to $1.66 billion. Also, its EPS increased 41.8% year-over-year to $2.75.
ADI’s revenue is expected to rise 7.6% year-over-year to $3.20 billion for the fiscal second quarter ending April 2023. The company’s EPS for the same quarter is expected to increase 14.8% year-over-year to $2.76. Additionally, the stock has topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 29.4% over the past six months to close the last trading session at $186.96.
ADI’s POWR Ratings reflect its robust fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
ADI also has a B grade for Momentum and Sentiment. It is ranked #33 in the same industry.
To access additional ratings for ADI’s Value, Stability, Quality, and Growth, click here.
MACOM Technology Solutions Holdings, Inc. (MTSI)
MTS designs and manufactures analog semiconductor solutions for use in wireless and wireline applications across the radio frequency, microwave, millimeter wave, and lightwave spectrum in the United States and internationally.
On March 7, MTSI announced the release of a 226Gbps per lane technology product family that can enable the development of 1.6TB optical modules.
On March 6, MTSI announced that it had acquired Linearizer Communications Group (Linearizer), a developer of industry leading products located in Hamilton, New Jersey.
MTSI’s trailing-12-month EBITDA margin of 28.61% is 223.9% higher than the 8.83% industry average. Its trailing-12-month gross profit margin of 60.72% is 20.1% higher than the 50.56% industry average.
During the fiscal first quarter that ended December 30, 2022, MTSI’s revenue increased 12.8% year-over-year to $180.10 million. The company’s non-GAAP net income increased 27.7% year-over-year to $58.01 million, and non-GAAP income per share increased 26.6% year-over-year to $0.81.
Street’s EPS estimate of $0.78 for the fiscal second quarter (ended March 2023) reflects a rise of 14.4% year-over-year. The company’s revenue estimate for the current quarter of $168.05 million indicates a 1.8% improvement from the prior-year quarter. Additionally, MTSI has topped consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 22.1% over the past year, closing the last trading session at $63.03.
It is no surprise that MTSI has an overall rating of B, which equates to a Buy in our POWR Ratings system.
It has a grade B for Momentum. MTSI is ranked #34 in the same industry.
In addition to the POWR ratings stated above, we have also rated MTSI for Value, Stability, Growth, Quality, and Sentiment. Get all the MTSI ratings here.
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QCOM shares were trading at $115.34 per share on Tuesday morning, down $2.01 (-1.71%). Year-to-date, QCOM has gained 5.55%, versus a 7.64% 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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