The extensive usage of chips across various industries and the growing adoption of emerging technologies across enterprises are expected to drive the demand for semiconductors. In addition, lucrative government incentives and investments should boost the industry’s prospects.
Considering the industry’s tailwinds, fundamentally strong and high performing chip stocks like Taiwan Semiconductor Manufacturing Company Limited (TSM), inTest Corporation (INTT) and Broadcom Inc. (AVGO) could be solid buys this week for strategic gains. But before we delve into the fundamentals of these stocks, lets explore the landscape of the industry.
Despite a challenging macroeconomic environment, the semiconductor industry is poised for tremendous growth and expansion in the long term, driven by rising chip demand across several industries, including automobile, consumer electronics, telecom, medical devices, and more.
According to Statista, revenue in the consumer electronics market would amount to $1.03 trillion in 2023 and is expected to grow at a CAGR of 2.3% until 2028. Such a spending splurge on electronics, especially among developing economies, should generate a huge demand for advanced chips and processors in the coming years.
Favorable government policies and spending should also boost the industry’s prospects. In July 2022, President Biden enacted the CHIPS and Science Act, allocating around $53 billion toward enhancing U.S. semiconductor manufacturing, research, and workforce. This includes a 25 percent tax credit for capital investments in semiconductor manufacturing.
According to a report by Mordor Intelligence, the semiconductor industry is projected to reach $1.09 trillion by 2028, growing at a CAGR of 10.9%.
With such prospects, lets now dive into the fundamentals of the aforementioned stocks of the Semiconductor & Wireless Chip industry, starting with the third one.
Stock #3: Taiwan Semiconductor Manufacturing Company Limited (TSM)
TSM is the world's second most valuable semiconductor company and the largest pure-play semiconductor foundry globally. It is headquartered in Hsinchu, Taiwan, and plays a pivotal role in the global semiconductor industry.
On September 27,2023, TSM has introduced 3D blox 2.0 open standard and highlighted achievements of its 3DFabric Alliance, advancing 3D IC design and integration, bolstering their position as a leader in the semiconductor industry. These innovations will enhance TSM's offerings and collaborative ecosystem, making advanced technologies more accessible, ultimately strengthening their competitive edge and attracting customers seeking cutting-edge solutions.
On August 8, TSM, Robert Bosch GmbH, Infineon Technologies AG, and NXP Semiconductors N.V. announced a collaborative investment in the European Semiconductor Manufacturing Company (ESMC) in Dresden, Germany, to provide advanced semiconductor manufacturing services.
For the third quarter that ended September 30, 2023, TSM reported net revenue and net income of $17.28 billion and $6.66 billion, respectively. The company’s income from operations stood at $7.21 billion, an increase of 12.9% quarter-over-quarter, while its EPS increased 16.1% from the prior quarter to come in at $0.26.
The consensus revenue estimate of $80.01 billion for the next fiscal year (ending December 2024) represents a 20.6% increase year-over-year. The consensus EPS estimate of $6.05 for the same period indicates a 18% improvement year-over-year. In addition, the company surpassed the consensus EPS estimates in all four trailing quarters.
Over the past year, the stock has gained 43.7% to close the last trading session at $87.45. It has gained 17.4% year-to-date.
TSM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum, Sentiment and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #20.
In addition to the POWR Ratings we’ve stated above, one can access TSM’s ratings for Growth, Value and Stability here .
Stock #2: inTest Corporation (INTT)
INTT is a global provider of testing and process solutions across various industries, including automotive, defence/aerospace, industrial, life sciences, security, and semiconductor manufacturing. They offer innovative solutions for both the front-end and back-end of semiconductor manufacturing.
On October 5, 2023, INTT announced that it has relocated its electronic circuit and electric vehicle battery test equipment operations to a single facility in Markham, Ontario, which is expected to boost operational efficiency, reduce time to product launch, and facilitate the implementation of lean manufacturing practices. This move reflects the company's focus on strengthening its presence in the automotive/EV market and the semiconductor industry.
INTT’s revenue increased 10.1% year-over-year to $32.56 million in the fiscal second quarter that ended June 30, 2023. Its gross profit grew 10.9% from the year-ago quarter to $15.03 million. The company’s adjusted net earnings and adjusted EPS stood at $3.23 million and $0.28, representing an increment of 18.7% and 12%, respectively.
Analysts expect INTT’s revenue to reach $129.49 million, indicating a 10.8% year-over-year growth for the fiscal year ending December, 2023. Its EPS is estimated to come in at $1.06, indicating a 6.6% increment year-over-year. Its EPS and revenue have topped analyst estimates in each of the four trailing quarters.
Shares of INTT has gained 54.3% over the past year and 26.1% year-to-date to close the latest trading session at $12.99.
INTT’s POWR Ratings are consistent with its positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value. It is ranked #17 in the same industry. Click here to see INTT’s Growth, Stability, Sentiment and Quality ratings.
Stock #1: Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. The company operates in two segments: Semiconductor Solutions and Infrastructure Software.
On October 17, 2023, AVGO unveiled Qumran3D, the newest addition to its StrataDNX single-chip router family. With up to 25.6 Terabits per second routing capacity and energy-efficient design, it meets evolving network needs, bolstering Broadcom's market position in addressing growing bandwidth and security demands in network infrastructure.
In the same month, AVGO launched the Sian BCM85822, a 5nm 200G/lane optical PAM-4 DSP PHY, delivering top-tier performance for optical transceiver makers. AVGO's move strengthens its position in high-bandwidth PHY solutions and aligns with the rising demand for increased networking capacity in data centre infrastructure, enhancing the company's presence and relevance in the field.
For the third quarter ended July 30, 2023, AVGO’s net revenue increased 4.9% year-over-year to $8.88 billion. Its non-GAAP operating income rose 6.5% year-over-year to $5.54 billion. Its non-GAAP net income rose 8.4% year-over-year to $4.60 billion. Also, its non-GAAP EPS came in at $10.54, representing an increase of 8.3% year-over-year.
For the quarter ending October, 2023, AVGO’s EPS and revenue are expected to increase 4.8% and 3.9% year-over-year to $10.95 and $9.28 billion, respectively. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters.
Over the past year, the stock has gained 79.3% while it gained 34.2% over the past six months to close the last trading session at $826.75.
AVGO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Momentum and Sentiment. It is ranked #13 out of 91 stocks in the industry. To see AVGO’s Growth, Value, and Stability ratings, click here.
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TSM shares were trading at $86.35 per share on Friday morning, down $1.10 (-1.26%). Year-to-date, TSM has gained 17.26%, versus a 9.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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