The semiconductor industry is at the forefront of technological advancements, driving innovation in various sectors such as Artificial Intelligence (AI), the Internet of Things (IoT), autonomous vehicles, 5G networks, and more.
The extensive usage and widespread adoption of semiconductors across various industries indicate a clear trajectory of increasing demand for the chip industry. Thus, investing in red-hot chip companies United Microelectronics Corporation (UMC), Photronics, Inc. (PLAB), and Everspin Technologies, Inc. (MRAM) could be wise for investors.
The semiconductor market is forecasted to achieve a revenue of $599.80 billion by 2023. From 2023 to 2027, it is projected to exhibit a CAGR of 8.1%, leading to a market volume of $818.60 billion by 2027.
In today’s world, chips are the ‘new oil’ as these tiny components are critical to industries ranging from automotive to consumer electronics and defense. With the global chip shortage affecting supply chains, the U.S. government has recognized the significance of domestic chip manufacturing and is investing billions of dollars to bolster its semiconductor industry.
These efforts aim to reduce dependency on foreign chip production and ensure a stable and secure supply of semiconductors for the nation.
While the semiconductor market has experienced some short-term sales fluctuations due to market cyclicality and macroeconomic conditions, the long-term outlook for the industry remains optimistic.
Owing to the increasing prevalence of semiconductors in a diverse range of devices, from smartphones and computers to automotive systems and medical equipment, chips have become essential components in numerous applications, indicating sustained demand for semiconductors in the future.
With that being said, let us evaluate the fundamentals of the featured stocks in detail.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a global semiconductor wafer foundry through two segments: Wafer Fabrication and New Business. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services.
On May 10, DENSO Corporation (DNZOY) and United Semiconductor Japan Co., Ltd. (USJC), a subsidiary of UMC, jointly announced a collaboration to manufacture Insulated Gate Bipolar Transistors (IGBT).
These IGBTs offer a notable 20% reduction in power losses compared to previous-generation devices, and the production capacity is expected to reach 10,000 wafers per month by 2025. This achievement comes just one year after the two companies established a strategic partnership to develop this crucial power semiconductor component for electric vehicles.
In the same month, UMC revealed that its 40nm RFSOI technology platform is ready for the production of millimeter-wave (mmWave) Radio Frequency (RF) front-end products.
This development is expected to contribute to the widespread adoption of 5G wireless networks and applications, including smartphones, Fixed Wireless Access (FWA) systems, and small cell-base stations.
Unlike the majority of current 5G networks that operate in the sub-8GHz bands, mmWave technology utilizes a new frequency spectrum ranging from 24GHz to 60GHz. This enables the delivery of exceptionally fast transfer speeds, significantly reduced latency, and more reliable connectivity for various applications.
The stock’s forward EV/EBITDA is trading at 5.46x, 62.6% lower than the industry average of 14.61x. Its forward non-GAAP P/E multiple of 11.39 is 50.4% lower than the industry average of 22.95x. Also, its forward EV/EBIT multiple of 9.19 is 50.4% lower than the industry average of 18.54x.
For the first quarter that ended March 31, 2023, UMC’s operating revenue amounted to N$54.20 billion ($1.76 billion), while its gross profit came in at N$19.22 billion ($625.47 million). The company’s attributable net income and EPS amounted to $16.18 billion ($526.54 million) and N$1.31 for the same period, respectively.
The consensus revenue estimate for the second quarter (ending June 30, 2023) is expected to be $1.77 billion. The consensus EPS estimate for the current quarter is expected to be $0.16.
Over the past nine months, the stock has gained 40.5% to close the last trading session at $8.92. It is trading higher than its 50-day moving average of $8.21 and 200-day moving average of $7.45, indicating an uptrend.
UMC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates 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 and a B for Value, Stability, and Quality. In the 91-stock Semiconductor & Wireless Chip industry, it is ranked #6. To see additional ratings of UMC for Growth and Sentiment, click here.
Photronics, Inc. (PLAB)
PLAB manufactures and sells photomasks used in the manufacture of Integrated Circuits (ICs) and Flat Panel Displays (FPDs); and to transfer circuit patterns onto semiconductor wafers, FDP substrates, and various types of electrical and optical components.
PLAB’s forward EV/EBITDA multiple of 4.19 is trading 71.4% lower than the industry average of 14.61x. Its forward EV/EBIT multiple of 5.46 is 70.5% lower than the industry average of 18.54x. Additionally, its forward non-GAAP P/E multiple of 11.80 is 48.6% lower than the industry average of 22.95x.
PLAB’s total revenue increased 12.1% year-over-year to $229.31 million in the second quarter of fiscal 2023 (ended April 30), while its gross profit rose 25.9% from the year-ago value to $88.40 million.
The company’s non-GAAP net income and EPS amounted to $32.94 million and $0.54, up 42.7% and 42.1% from the prior year period, respectively. Also, its operating income increased 35.7% year-over-year to $67.05 million.
Street expects PLAB’s revenue and EPS for the third quarter (ending July 31, 2023) to increase 4.6% and 1.9% year-over-year to $230 million and $0.52, respectively. Additionally, it surpassed the EPS and revenue estimates in each of the trailing four quarters, which is excellent.
The stock has gained 52.5% over the past nine months to close the last trading session at $23.59. It is trading higher than its 50-day moving average of $17.51 and 200-day moving average of $17.13.
PLAB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #4. Click here to see PLAB’s ratings for Growth and Stability.
Everspin Technologies, Inc. (MRAM)
MRAM is engaged in the manufacturing and sale of Magnetoresistive Random Access Memory (MRAM) products and solutions. Its offerings include Toggle MRAM, spin-transfer torque MRAM, tunnel magnetoresistance sensor products, and foundry services for MRAM products.
In terms of forward non-GAAP PEG, the stock is trading at 1.19x, 35.5% lower than the industry average of 1.85x. Its forward EV/Sales and Price/Book multiples of 2.71 and 3.86 are 10.3% and 7.1% lower than the industry averages of 3.02x and 4.15x.
In the first quarter (ended March 31, 2023), MRAM’s total revenues increased 3.5% year-over-year to $14.85 million, while its gross profit grew marginally from the year-ago value to $8.43 million. The company’s net income came in at $761 thousand and $0.04 per share, respectively, for the same period. Also, its adjusted EBITDA stood at $2.32 million for the same period.
During the same period, its total current liabilities amounted to $6.26 million, declining 42.4% compared to $10.88 million as of December 31, 2022.
Analysts expect MRAM’s revenue for the second quarter (ending June 30, 2023) to increase 2% year-over-year to $15 million. Its EPS is expected to be $0.08 in the same period and increase by 20% per annum over the next five years. Moreover, the stock topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
MRAM’s shares have gained 60.6% over the past six months and 62.9% over the past year to close the last trading session at $8.83. It is trading higher than its 50-day moving average of $7.37 and 200-day moving average of $6.57.
It’s no surprise that MRAM has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and Sentiment and a B for Value. Out of 91 stocks in the same industry, it is ranked #7.
In addition to the POWR Ratings we’ve stated above, we also have MRAM’s ratings for Growth, Stability, and Quality. Get all MRAM ratings here.
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UMC shares were trading at $8.77 per share on Friday afternoon, down $0.15 (-1.68%). Year-to-date, UMC has gained 34.30%, versus a 16.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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