The semiconductor industry is expected to grow steadily due to increased chip usage for incorporating advanced technologies across sectors. The industry has gained immense prominence amid the AI wave, as semiconductors are instrumental in developing and maintaining AI applications.
Therefore, investors looking to capitalize on the favorable industry trends could consider buying semiconductor stocks Nikon Corporation (NINOY), Amkor Technology, Inc. (AMKR), and Applied Materials, Inc. (AMAT) that are well-positioned to deliver solid returns.
After challenging market conditions in 2023, the semiconductor industry is poised for a solid rebound this year. The global semiconductor industry is estimated to reach $1.41 trillion by 2032, growing at an 11.6% CAGR.
IDC predicts a resurgence of the chip industry in 2024, driven by rebounding smartphone demand and rising demand for AI chips. The semiconductor market is expected to grow more than 20% this year.
Furthermore, the growing demand for generative AI fuels the demand for high-performance Graphics Processing Units (GPUs). Deloitte predicts that the market for specialized semiconductors that fuel generative AI will exceed $50 billion this year. Also, the global GPU market is expected to reach $206.95 billion by 2029, growing at a 32.7% CAGR.
Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 78.4% returns over the past year.
In light of these encouraging trends, let’s examine the fundamentals of the three Semiconductor & Wireless Chip stocks, beginning with the third pick.
Stock #3: Nikon Corporation (NINOY)
Headquartered in Minato, Japan, NINOY manufactures and sells optical instruments in Japan, North America, Europe, China, Thailand, and internationally. It operates through the Imaging Products Business, Precision Equipment Business, Healthcare Business, Components Business, Industrial equipment, and other segments.
On March 7, 2024, NINOY announced that it has agreed to acquire 100% of the outstanding membership interests of RED.com, LLC (RED), making RED a wholly-owned subsidiary of Nikon.
This agreement resulted from Nikon and RED’s shared desire to combine their strengths to meet their customers' needs and deliver outstanding user experiences that go above and beyond their expectations.
NINOY’s trailing-12-month gross profit margin of 43.26% is 20.9% higher than the 35.79% industry average. Its trailing-12-month EBITDA margin of 10.91% is marginally higher than the 10.87% industry average. Additionally, its 4.26% trailing-12-month CAPEX/Sales is 41.5% higher than the 3.01% industry average.
NINOY’s revenue for the nine months that ended December 31, 2023, increased 16% year-over-year to ¥528.91 billion ($3.57 billion). Its gross profit rose 6.5% over the prior-year quarter to ¥229.94 billion ($1.55 billion). Also, the company’s profit for the period and EPS came in at ¥24.52 billion ($165.69 million) and ¥71.72, respectively.
For the quarter ending June 30, 2024, NINOY’s revenue is expected to increase 1.3% year-over-year to $1.12 billion. Over the past three months, the stock has gained 7.1% to close the last trading session at $10.37.
NINOY’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NINOY has an A grade for Momentum and a B for Value and Stability. Within the Semiconductor & Wireless Chip industry, it is ranked #10 out of 89 stocks. To see the additional ratings of NINOY for Growth, Sentiment, and Quality, click here.
Stock #2: Amkor Technology, Inc. (AMKR)
AMKR is a top semiconductor packaging and test service provider offering semiconductor device design, testing, and packaging services. Its product line includes various packages used in networking, computing, storage, mobile consumer electronics, and other sectors.
On January 16, 2024, AMKR partnered with GlobalFoundries (GF), one of the world’s leading semiconductor manufacturers, to redefine the semiconductor manufacturing landscape by enabling the first comprehensive EU supply chain from semiconductor wafer production at GF to OSAT services at AMKR.
To facilitate this collaboration, GF transferred its 300 mm Bump (12-inch bump, CuP, and plated bump) and Sort lines from its Dresden site to AMKR’s IATF 16949 certified Porto plant to establish the first at-scale back-end facility in Europe. This partnership signals AMKR’s goal to stabilize a robust and resilient European automotive supply chain.
AMKR’s trailing-12-month EBIT margin of 7.22% is 47.5% higher than the 4.89% industry average. Its trailing-12-month EBITDA margin of 16.93% is 85.8% higher than the 9.11% industry average. Additionally, its 5.31% trailing-12-month Return on Total Assets is 317.5% higher than the 1.27% industry average.
For the fiscal fourth quarter that ended December 31, 2023, AMKR’s net sales and gross profit stood at $1.75 billion and $279.11 million, respectively. Moreover, its EBITDA stood at $326 million.
For the same quarter, net income attributable to AMKR and net income attributable to AMKR per common share stood at $117.56 million and $0.48, respectively. As of December 31, 2023, AMKR’s long-term debt was $1.07 million, compared to $1.09 billion as of December 31, 2022.
Street expects AMKR’s EPS and revenue for the quarter ending September 30, 2024, to increase 32.1% and 2.8% year-over-year to $0.71 and $1.87 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 42.3% to close the last trading session at $31.87.
AMKR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #9 in the same industry and has a B grade for Value and Momentum. Click here to see AMKR's additional ratings for Growth, Stability, Sentiment, and Quality.
Stock #1: Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and other related industries internationally. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On February 26, 2024, AMAT announced a portfolio of products and solutions designed to address the patterning requirements of chips in the “angstrom era.” AMAT introduced innovative etch systems, CVD patterning films, and metrology solutions to enhance chips using EUV and High-NA EUV lithography.
AMAT also collaborates with cutting-edge logic chipmakers on many Sculpta applications.
AMAT’s trailing-12-month net income margin of 27.03% is 928.8% higher than the industry average of 2.63%. Its 46.41% trailing-12-month Return on Common Equity is significantly higher than the 2.97% industry average. Its 22.26% trailing-12-month Return on Total Capital is 815.8% higher than the 2.43% industry average.
During the first quarter that ended January 28, 2024, AMAT reported net sales of $6.71 billion. Its non-GAAP gross profit increased 1.9% year-over-year to $3.21 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $1.78 billion and $2.13, up 3.4% and 4.9% from the prior year’s quarter, respectively.
In addition, the company’s non-GAAP free cash flow increased 5.7% from the year-ago value to $2.10 billion. Its cash and cash equivalents were $6.85 billion as of January 28, 2024, compared to $6.13 billion as of October 29, 2023.
Analysts expect AMAT’s EPS and revenue for the quarter ending July 31, 2024, to increase 3.1% and 2.2% year-over-year to $1.96 and $6.56 billion, respectively. It surpassed the EPS estimates in three of the trailing four quarters. AMAT shares have gained 74.4% over the past year, closing the last trading session at $208.46.
It’s no surprise that AMAT has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Momentum, Sentiment, and Quality. It is ranked #8 in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we’ve also rated AMAT for Growth, Value, and Stability. Get all AMAT ratings here.
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AMAT shares were trading at $208.46 per share on Tuesday morning, down $0.00 (0.00%). Year-to-date, AMAT has gained 28.84%, versus a 9.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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