Semiconductors are crucial to consumer electronics, healthcare, automotive, telecommunication, data centers, and defense sectors. Given its heightened demand and supportive government initiatives for the industry, fundamentally sound semiconductor stocks Tower Semiconductor Ltd. (TSEM), United Microelectronics Corporation (UMC), and inTEST Corporation (INTT) could be solid buys for lucrative returns in December.
The Semiconductor Industry Association (SIA) recently revealed that burgeoning global semiconductor sales witnessed a 1.9% surge month-over-month in September 2023, totaling $134.7 billion in the third quarter of 2023 and marking a sharp incline of 6.3% compared to the second quarter of 2023. The global semiconductor market is expected to grow at a CAGR of 9.2% to reach $1.03 trillion by 2030.
Rapid advancements in generative AI and the increasing adoption of several AI-based applications across data centers, edge infrastructure, and endpoint devices necessitate the integration of graphics processing units (GPUs) and enhanced semiconductor devices. This is driving a considerable surge in demand for AI chips.
Gartner estimates that chips specifically engineered to facilitate AI operations will account for a significant revenue opportunity of $53.40 billion for the semiconductor industry in 2023. By 2027, AI chip revenue could more than double the 2023 market size, reaching $119.40 billion.
Further propelling the heightened demand in the semiconductor sector is favorable government policies like the CHIPS and Science Act. This act commits approximately $53 billion towards revitalizing semiconductor manufacturing, advancing research, and fostering workforce development within the U.S.
Furthermore, investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 58.8% returns year-to-date.
In light of these encouraging trends, let's look at the fundamentals of the three Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry that manufactures and markets analog-intensive mixed-signal semiconductor devices in the United States, Japan, other Asian countries, and Europe.
On September 11, 2023, TSEM and Fortsense successfully developed an advanced 3D imager, FL6031, for LiDAR applications based on dToF technology. This development addresses the needs of depth sensing applications in automotive, consumer, and industrial markets.
In the same month, TSEM and InnoLight Technology collaborated to develop high-speed optical transceivers using TSEM’s Silicon Photonics process platform (PH18). Production is already underway, aiming to provide cutting-edge solutions for AI, data centers, and next-gen telecom networks.
This development holds immense promise for TSEM as the silicon photonic die market is expected to grow at a CAGR of 22%, reaching half a billion dollars by 2027.
TSEM’s trailing-12-month cash from operations of $683.21 billion is 873.9% higher than the industry average of $70.15 million. Its trailing-12-month ROCE and ROTA of 26.72% and 19.32% are significantly higher than the industry averages of 1.01% and 0.26%, respectively.
TSEM’s revenues for the fiscal third quarter that ended September 30, 2023, stood at $358.17 million, while its gross profit came in at $86.87 million. The company’s operating profit increased 357.2% from the prior-year quarter to $362.16 million.
Moreover, its adjusted net profit and adjusted earnings per share stood at $60.46 million and $0.54, respectively. As of September 30, 2023, its total current assets stood at $1.72 billion, compared to $1.50 billion as of December 31, 2022.
Street expects TSEM’s revenue and EPS in the fiscal fourth quarter ending December 2023 to be $350 million and $0.52, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters and revenue estimates in three out of the trailing four quarters, which is impressive.
The stock has gained marginally intraday to close the last trading session at $27.64. Over the past month, it has gained 20.1%.
TSEM’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Value, Sentiment, and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #10 out of 92 stocks.
To see additional POWR Ratings for Growth and Stability for TSEM, click here.
Stock #2: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It serves fabless design companies and integrated device manufacturers.
On October 31, UMC launched the W2W (wafer-to-wafer) 3D IC project in collaboration with partners Winbond, Faraday, ASE, and Cadence. This project aims to expedite the production of 3D products by providing an end-to-end solution for integrating memory and processors using silicon stacking technology.
It caters to the increasing demand for efficient computing at the device level, particularly in edge AI applications such as home and industrial IoT, security, and smart infrastructure.
Its annualized dividend rate of $0.58 per share translates to a dividend yield of 7.25% on the current share price. Its four-year average yield is 4.42%. UMC’s dividend payments have grown at CAGRs of 61.6% and 37.7% over the past three and five years, respectively.
UMC’s trailing-12-month cash from operations of $3.12 billion is significantly higher than the industry average of $70.15 million. Its trailing-12-month ROCE and ROTA of 20.81% and 12.63% are significantly higher than the industry averages of 1.01% and 0.26%, respectively.
In the fiscal third quarter that ended September 30, 2023, UMC’s operating revenues and gross profit stood at $1.77 billion and $634 million, respectively. For the same quarter, net income attributable to shareholders of the parent and earnings per ADS stood at $495 million and $0.20, respectively.
As of September 30, 2023, UMC’s total current liabilities stood at $2.85 billion, compared to $3.40 billion as of September 30, 2022.
Street expects UMC’s revenue and EPS in the fiscal fourth quarter ending December 2023 to be $1.73 billion and $0.16, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 21.6% year-to-date to close the last trading session at $7.94. Over the past three months, it has gained 9.7%.
UMC’s POWR Ratings reflect its robust prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Value and Quality. Within the same industry, it is ranked #9.
Click here for the additional POWR Ratings for UMC (Growth, Stability, and Sentiment).
Stock #1: inTEST Corporation (INTT)
INTT provides testing and process solutions across various industries, including automotive, defense/aerospace, industrial, life sciences, security, and semiconductor manufacturing. They offer innovative solutions for both the front-end and back-end of semiconductor manufacturing.
On November 27, INTT’s Board of Directors approved a stock repurchase plan allowing the purchase of up to $10 million of the company's common stock through November 17, 2024. The stock repurchase plan is intended to provide the company with an effective mechanism for capital management.
INTT’s trailing-12-month cash per share of $3.48 is 85% higher than the industry average of $1.88. Its trailing-12-month ROCE and ROTA of 15.25% and 8.78% are significantly higher than the industry averages of 1.01% and 0.26%, respectively.
For the fiscal third quarter, which ended on September 30, 2023, INTT’s revenue increased 6.1% year-over-year to $32.66 million, while its gross profit stood at $15.33 million, up 10.3% from the year-ago quarter.
For the same quarter, adjusted net earnings stood at $3.40 million, up 12.7% from the year-ago value, while adjusted EPS stood at $0.28. Moreover, its adjusted EBITDA increased 2.9% from the prior-year quarter to $4.58 million.
Street expects INTT’s revenue for the fiscal year ending December 2023 to increase 8.1% year-over-year to $126.29 million. Its EPS is expected to be $0.99. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 3.3% intraday to close the last trading session at $13.50. Over the past year, it has gained 19.8%.
INTT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
INTT has an A grade for Value and Momentum. Within the same industry, it is ranked #8.
Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, Sentiment, and Quality. Get all ratings of INTT here.
What To Do Next?
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UMC shares were unchanged in premarket trading Monday. Year-to-date, UMC has gained 28.34%, versus a 21.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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