The semiconductor industry witnessed significant upheaval last year. The Russia- Ukraine conflict, escalating China – United States tensions, and a resurgence of global COVID-19 cases posed formidable challenges for an industry proactively addressing inventory issues.
However, expanding chip applications is further fueling the sector’s growth. Hence, fundamentally sound chip stocks NVIDIA Corporation (NVDA), Nikon Corporation (NINOY), and Photronics, Inc. (PLAB) could be quality additions to your watchlist this week.
Let’s understand this in detail.
The expansive integration of semiconductors across an array of end-use domains such as electronics, industrial machinery, automotive, networking, communications, and data processing stands out as a pivotal driver propelling the growth of the worldwide semiconductor market.
A multitude of applications, encompassing AI, AR/VR, Internet of Things (IoT), autonomous vehicles, electric vehicles, High-Performance Computing (HPC), aerospace, satellite communications, 5G/6G, smart cities, health tech, and more, all dependent on advancements in semiconductor technologies are further boosting the sector’s growth.
According to a report by Custom Market Insights, the global semiconductor chip market is expected to grow at a CAGR of 7.1% and reach $1.12 trillion by 2032.
Moreover, in recent months, the United States has enacted stringent restrictions on chip sales and Chinese company employment. Concurrently, it has incentivized domestic chip manufacturing through generous federal subsidies, intensifying efforts to regain supply chain control and bolster the semiconductor industry's presence within its borders.
That said, the CHIPS and Science Act has allocated $52.70 billion to bolster American semiconductor R&D, manufacturing, and workforce training. This comprises $39 billion for manufacturing incentives, $13.20 billion for research, development, and training, and $500 million for international ICT security and semiconductor supply chain efforts.
In the one year the Act was signed into law, companies announced over $166 billion in manufacturing in semiconductors and electronics. Since the beginning of the Biden-Harris administration, companies announced over $231 billion in commitments to semiconductor and electronics investments in the country.
Against this backdrop, let’s delve into the fundamentals of robust chip stocks NVDA, NINOY, and PLAB to understand what could make them ideal additions to your watchlist this week.
NVIDIA Corporation (NVDA)
NVDA propels computation to tackle complex computational problems. Its Compute & Networking arm entails a data center accelerated computing platform, automotive AI cockpit, and advanced networking, whereas the Graphics segment offers GeForce GPUs for gaming, PC, gaming platform solutions, and more.
On August 8, NVDA unveiled a significant launch of its NVIDIA Omniverse™ platform, introducing novel foundational applications and services. As industries accelerate digital transformation, the surge for OpenUSD-enabled, interconnected, 3D software ecosystems intensifies.
The updated Omniverse is expected to enable developers to harness generative AI via OpenUSD, amplifying tool capabilities while empowering enterprises to construct expansive, intricate world-scale simulations as digital proving grounds for industrial innovations.
The company introduced the forthcoming NVIDIA GH200 Grace Hopper™ platform on the same day, featuring an innovative Grace Hopper Superchip housing the pioneering HBM3e processor. Crafted to thrive in the realm of accelerated computing and generative AI, this platform heralds a new era of technological advancement.
With escalating demand for generative AI solutions, the GH200 Grace Hopper Superchip, tailored for data centers, positions NVDA to capture a lucrative market. Its cutting-edge memory tech and server architecture are expected to enhance performance, attract clients and potentially boost revenue.
NVDA’s trailing-12-month gross profit margin of 56.3% is 17.6% higher than the 47.89% industry average. Its trailing-12-month EBITDA margin of 23.53% is 162.8% higher than the industry average of 8.96%. In addition, the stock’s trailing-12-month net income margin of 18.52% is 821% higher than the industry average of 2.01%.
For the fiscal 2024 first quarter that ended April 30, 2023, NVDA’s income from operations rose 14.6% year-over-year to $2.14 billion. Its net income and EPS grew 26.3% and 28.1% from the prior year’s quarter to $2.04 billion and $0.82, respectively. Also, its cash inflow from operating activities increased 68.2% from the year-ago value to $2.91 billion.
For the fiscal year ending January 2024, NVDA’s revenue is expected to increase 61.9% year-over-year to $43.66 billion. The company’s EPS for the ongoing year is expected to come in at $7.96, up 138.4% from the prior year. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters.
Shares of NVDA have surged 196.1% year-to-date to close the last trading session at $423.88.
NVDA’s fundamentals are apparent in its POWR Ratings. The stock has an A grade for Sentiment and a B for Quality. It has ranked #44 out of 92 stocks in the Semiconductor & Wireless Chip industry. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
In addition to the POWR Ratings I’ve just highlighted, you can see NVDA’s ratings for Stability, Momentum, Growth, and Value here.
Nikon Corporation (NINOY)
Based in Minato, Japan, NINOY manufactures and sells image and video equipment. Its segments include Imaging Products; Precision Equipment; Healthcare; Components and Industrial equipment; and Others. The company is also involved in lens development, testing services, camera unit assembly, and logistical activities.
On July 26, NINOY announced a collaborative development accord with 4JET Group, a pioneer in employing pulsed laser radiation to ablate and alter surfaces. The alliance aims to expedite innovation and the application of laser-based riblet technology with precision and swiftness.
By tapping into 4JET's extensive knowledge in advanced laser materials processing, NINOY can harness cutting-edge techniques to enhance its technological arsenal. The alliance also leverages 4JET's established market leadership, facilitating NINOY's entrance into new sectors while bolstering its competitive edge.
On April 27, NINOY unveiled that its U.S. arm, Nikon Americas Inc., finalized an equity purchase agreement with Avonix Imaging, LLC. Renowned for its involvement in X-ray and CT Systems' manufacturing, sales, and services, Avonix is in the process of being incorporated as a Nikon Americas Inc. subsidiary.
With a resolute focus on X-ray and CT inspections, NINOY aims to ingeniously address diverse manufacturing site inspection and measurement demands, thus advancing its pioneering role in the industry. The acquisition of Avonix aligns seamlessly with this vision, fortifying NINOY's ability to deliver groundbreaking solutions.
NINOY’s trailing-12-month gross profit margin of 45.08% is 27.3% higher than the 35.41% industry average. Moreover, the stock’s trailing-12-month EBITDA margin of 12.50% is 16.5% higher than the industry average of 10.73%. Also, its trailing-12-month net income margin of 5.57% is 33.2% higher than the 4.18% industry average.
During the first quarter that ended June 30, 2023, NINOY’s revenue increased 8.6% year-over-year to ¥158.15 billion ($1.10 billion). Its total comprehensive income for the period grew 7.6% from the year-ago value to ¥33.89 billion ($235 million).
In addition, as of June 30, 2023, the company’s total current assets came in at ¥646.15 billion ($4.48 billion), compared to ¥617.88 billion ($4.29 billion) as of March 31, 2023.
The consensus revenue estimate of $4.99 billion for fiscal 2025 reflects a 6.5% year-over-year improvement. Likewise, the consensus EPS estimate for the next year is expected to grow 30.6% from the previous year to $1.11. Also, the company’s EPS is expected to grow 13.5% annually over the next five years.
Year-to-date, the stock has gained 23.1%, closing the last trading session at $10.83.
NINOY’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
NINOY has a B grade for Stability, Quality, and Value. It is ranked #6 out of 92 stocks within the Semiconductor & Wireless Chip industry.
Click here to access additional NINOY ratings (Growth, Momentum, and Sentiment).
Photronics, Inc. (PLAB)
PLAB manufactures Integrated Circuits (IC) and Flat Panel Display (FPD) photomasks, which it supplies to semiconductor designers, manufacturers, and FPD manufacturers. The company operates 11 manufacturing facilities across Taiwan, Korea, the United States, Europe, and China.
PLAB’s trailing-12-month EBITDA margin of 37.36% is 317.2% higher than the 8.96% industry average. Its trailing-12-month net income margin of 14.04% is 598% higher than the industry average of 2.01%. Moreover, its trailing-12-month levered FCF margin of 11.86% is 58.8% higher than the 7.47% industry average.
For the second quarter that ended April 30, 2023, PLAB’s revenue increased 12.1% year-over-year to $229.31 million. Its gross profit grew 25.9% from the year-ago value to $88.40 million. Moreover, the company’s non-GAAP net income and non-GAAP EPS rose 42.7% and 42.1% from the prior year’s quarter to $32.94 million and $0.54, respectively.
The consensus revenue estimate of $901.40 million for the fiscal year ending October 2023 indicates a 9.3% year-over-year improvement. Likewise, the consensus EPS estimate of $2.00 for the current year reflects a 3.1% rise year-over-year. Also, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
The stock has surged 45.9% year-to-date, closing the last trading session at $24.46.
PLAB’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
PLAB has an A grade for Momentum and a B for Value, Quality, and Sentiment. It is ranked #4 out of 92 stocks within the same industry.
Click here to access additional PLAB ratings for Growth and Stability.
What To Do Next?
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NVDA shares were trading at $408.74 per share on Friday afternoon, down $15.14 (-3.57%). Year-to-date, NVDA has gained 179.77%, versus a 17.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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