The semiconductor industry is fuelled by the rising adoption of AI and machine learning in high-computing applications across multiple industries. Given the industry’s steady growth prospects, investors could consider quality semiconductor stocks Applied Materials, Inc. (AMAT), Microchip Technology Incorporated (MCHP), and Everspin Technologies, Inc. (MRAM) for October.
The global semiconductor market is expected to grow at a 13.1% CAGR until 2032. This expansion can be ascribed to the rising demand for semiconductors in a number of sectors, including telecommunications, consumer electronics, and automobiles.
The rising adoption of AI-powered devices and applications is one of the key factors positively impacting the Wireless Chipset market growth. Furthermore, there is significant implementation of AI algorithms and machine learning (ML) techniques in various devices such as smartphones, smart home devices, wearables, and industrial sensors, which is boosting the market.
The Wireless Chipset market is estimated to grow at a CAGR of 4.4% until 2027.
Furthermore, favorable government policies and spending should create numerous growth opportunities for the industry. In July 2022, President Biden signed the CHIPS and Science Act into law, directing assigning approximately $53 billion to improve semiconductor manufacturing, research, and the workforce in the US.
With these favourable trends in mind, let's delve into the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Applied Materials, Inc (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related sectors in the United States, China, Korea, Taiwan, Japan, and Europe. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On September 7, 2023, AMAT announced a quarterly cash dividend of $0.32 per share, payable on December 14, 2023. AMAT pays $1.28 annually in dividends, which translates to a yield of 0.92% at the current price. Its 4-year average dividend yield is 1.01%.
On July 11, AMAT introduced the Vistara wafer manufacturing platform. The platform is a significant advancement in chipmaking, designed to tackle the changing obstacles in the industry. It provides chipmakers with improved flexibility, intelligence, and sustainability.
AMAT’s trailing-12-month EBIT margin of 29.07% is 532.8% higher than the industry average of 4.59%. Its trailing-12-month asset turnover ratio of 0.94x is 51.7% higher than the industry average of 0.62x.
During the third quarter that ended July 30, 2023, AMAT’s net sales from the Applied Global Services segment were $1.46 billion, up 3.1% year-over-year. As of July 30, 2023, the company’s cash and cash equivalents were $6.03 billion, compared to $2 billion as of October 30, 2022. Its current assets amounted to $18.88 billion versus $15.93 billion as of October 30, 2022.
Analysts expect AMAT’s EPS for the fiscal year (ending October 2023) to increase 2.8% year-over-year to $7.92. LikIts revenue estimate of $26.32 billion for the current year indicates a 2.1% rise year-over-year. In addition, the company exceeded the consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.
AMAT’s shares have gained 70.3% over the past year to close the last trading session at $139.51.
AMAT’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.
It has an A grade for Momentum and a B in Quality. It is ranked #10 out of 91 stocks in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we’ve also rated AMAT for Stability, Growth, Value, and Sentiment. Get all AMAT ratings here.
Stock #2: Microchip Technology Incorporated (MCHP)
MCHP develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.
MCHP pays $1.64 annually in dividends, which translates to a yield of 2.10% at the current price. Its 4-year average dividend yield is 1.39%.
On September 27, 2023, MCHP’s Silicon Storage Technology (SST) subsidiary and GlobalFoundries, Inc. (GFS) announced the immediate release to production of the SST ESF3 third-generation embedded SuperFlash technology NVM solution in the GF 28SLPe foundry process.
On September 7, MCHP launched a complete, integrated workflow for streamlined ML model development with its new MPLAB Machine Learning Development Suite. This software toolkit can be utilized across Microchip’s portfolio of microcontrollers (MCUs) and microprocessors (MPUs) to add an ML inference quickly and efficiently.
MCHP’s trailing-12-month net income margin of 27.35% is significantly higher than the 2.03% industry average. Its trailing-12-month ROCE of 37.42% is significantly higher than the 1.62% industry average.
MCHP’s net revenue for the first quarter ended June 30, 2023, increased 16.6% year-over-year to $2.29 billion. Its non-GAAP gross profit came in at $1.57 billion, up 18.8% year-over-year. Also, its non-GAAP net income and non-GAAP EPS came in at $905.30 million and $1.64, up 18% and 19.7% year-over-year, respectively.
Street expects MCHP’s revenue to increase 3.3% year-over-year to $8.72 billion for the year ending March 2024. Its EPS is expected to grow 1.6% year-over-year to $6.12 for the same period. It has surpassed EPS and revenue estimates in three of four trailing quarters.
Shares of MCHP have gained 28.4% over the past year to close the last trading session at $78.37.
It’s no surprise that MCHP has an overall rating of B, which equates to Buy in our proprietary rating system.
MCHP has a B grade for Quality. It is ranked #8 in the same industry.
In addition to the POWR Ratings highlighted above, one can access MCHP’s ratings for Momentum, Stability, Value, Growth, and Sentiment here.
Stock #1: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells a range of Magnetoresistive Random Access Memory (MRAM) products. The company offers Toggle MRAM, spin-transfer torque MRAM, and tunnel magnetoresistance sensor products. Additionally, it provides foundry services for MRAM products.
MRAM’s trailing-12-month net income margin of 11.65% is 472.9% higher than the industry average of 2.03%, while its trailing-12-month ROTC of 6.43% is 171.8% higher than the industry average of 2.37%.
For the second quarter that ended June 30, MRAM’s total revenue increased 7.1% year-over-year to $15.75 million. Its adjusted EBITDA grew 66.7% from the year-ago value to $5.43 million. Also, the company’s net income and comprehensive rose 132.5% year-over-year to $3.89 million, while net income per share stood at $0.18, up 125% from the prior year’s quarter.
The consensus revenue estimate of $15.70 million for the fourth quarter ending December 2023 indicates a 2% year-over-year improvement. It surpassed the EPS and revenue estimates in each of the trailing four quarters.
Over the past year, the stock has gained 73.1% to close the last trading session at $10.02.
MRAM’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 stock has an A grade for Sentiment and a B in Value and Quality. It is ranked #2 in the same industry.
Click here to access the additional MRAM ratings (Growth, Stability, and Momentum).
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AMAT shares were trading at $137.35 per share on Tuesday afternoon, down $2.16 (-1.55%). Year-to-date, AMAT has gained 42.05%, versus a 11.49% 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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