The semiconductor industry is experiencing robust growth, driven by soaring demand for AI chips, high-bandwidth memory, and high-performance chips. This expansion is further supported by rising IC sales, increased wafer fab capacity, and a rebound in consumer electronics demand. As these trends continue, capital expenditures are expected to surge, setting the stage for substantial industry growth.
Amidst this surging demand, it would be wise to keep an eye on fundamentally strong semiconductor stocks such as FormFactor, Inc. (FORM), Photronics, Inc. (PLAB), and Tower Semiconductor Ltd. (TSEM).
Despite ongoing chip shortages, the global semiconductor market is poised for strong growth. Powered by trends such as Generative AI, automation, and e-mobility, the industry is experiencing rapid expansion, fueling investments and manufacturing. Statista predicts the semiconductor market will reach $607.40 billion in revenue in 2024, with a 10.1% CAGR, and will reach $980.80 billion by 2029.
The Semiconductor Industry Association (SIA) announced that global semiconductor sales will hit $149.90 billion in the second quarter of 2024, an 18.3% increase from the same period last year. This growth is fueled by expansions in automotive, healthcare, retail, manufacturing, and data centers, where collaborations on specialized chips have successfully met rising demand and mitigated shortages.
Furthermore, investors’ interest in chip stocks is evident from the VanEck Semiconductor ETF’s (SMH) 59.6% returns over the past year. Considering these conducive trends, let’s analyze the fundamental aspects of the three Semiconductor & Wireless Chip picks, beginning with the third choice.
Stock #3: FormFactor, Inc. (FORM)
FORM designs, manufactures, and sells probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to semiconductor companies and scientific institutions. It operates in two segments: Probe Cards and Systems.
In terms of the trailing-12-month net income margin, FORM’s 17.20% is 360.6% higher than the 3.73% industry average. Likewise, its 13.62% trailing-12-month Return on Common Equity is 195.3% higher than the 4.61% industry average. Additionally, its 10.50% trailing-12-month Return on Total Assets is 412.4% higher than the 2.05% industry average.
FORM’s revenue for the second quarter that ended June 29, 2024, increased 26.7% year-over-year to $197.47 million. The company’s non-GAAP operating income rose 155.6% from the year-ago value to $28.54 million. Also, FORM’s non-GAAP net income attributable to stockholders came in at $27.32 million and $0.35 per share, up 143.1% and 150% over the prior-year quarter, respectively.
For the quarter ending September 30, 2024, FORM’s EPS and revenue are expected to increase 42.4% and 16% year-over-year to $0.31 and $199.09 million, respectively. It surpassed the consensus revenue estimates in each of the trailing four quarters. Over the past year, the stock has gained 57.2% to close the last trading session at $48.99.
FORM’s POWR Ratings reflect strong prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Momentum and Quality. It is ranked #16 out of 90 stocks in the Semiconductor & Wireless Chip industry. Beyond what we stated above, we also have given FORM grades for Value, Stability, and Sentiment. Get all the FORM’s ratings here.
Stock #2: Photronics, Inc. (PLAB)
PLAB and its subsidiaries manufacture and sell photomask products and services internationally. They offer photomasks used in the manufacture of integrated circuits and flat panel displays (FPDs) and in transferring circuit patterns onto semiconductor wafers and FPD substrates.
In terms of the trailing-12-month levered FCF margin, PLAB’s 14.68% is 40.5% higher than the 10.45% industry average. Likewise, the stock’s 36.93% trailing-12-month EBITDA margin is 265.3% higher than the 10.11% industry average. Also, the stock’s 15.14% trailing-12-month net income margin is 305.6% higher than the 3.73% industry average.
For the fiscal second quarter that ended April 28, 2024, PLAB reported a revenue of $217 million. Its operating income stood at $56.05 million. Also, the company’s non-GAAP net income and non-GAAP EPS came in at $28.72 million and $0.46, respectively. In addition, as of April 28, 2024, PLAB’s cash, cash equivalents end of period was $539.16 million compared to $499.29 million as of October 31, 2023.
Analysts expect PLAB’s EPS for the quarter ended July 31, 2024, to increase 9.8% year-over-year to $0.56, and its revenue for the same quarter is expected to increase marginally year-over-year to $225 million. Over the past nine months, the stock has gained 14.02% to close the last trading session at $24.08.
PLAB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. In the same industry, it is ranked #5. To access additional grades for PLAB’s Growth, Stability, and Sentiment ratings, click here.
Stock #1: 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.
In terms of the trailing-12-month EBIT margin, TSEM’s 12.73% is 154.8% higher than the 4.99% industry average. Likewise, its 21.77% trailing-12-month Return on Common Equity is 372% higher than the industry average of 4.61%. Its 33.17% trailing-12-month Capex/Sales is considerably higher than the industry average of 2.11%.
TSEM’s revenues for the second quarter that ended June 30, 2024, came in at $351.18 million, while its gross profit came in at $86.92 million up marginally year-over-year. Moreover, its adjusted net profit attributable to the company and adjusted EPS rose 1.2% and 1.9% over the prior-year quarter to $59.04 million and $0.52, respectively.
Street expects TSEM’s revenue for the quarter ending September 30, 2024, to increase 3.4% year-over-year to $370.35 million. Its EPS for the quarter ending December 31, 2024, is expected to increase marginally year-over-year to $0.55. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 56.5% over the past nine months to close the last trading session at $42.89.
TSEM’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Momentum and Sentiment. Within the Semiconductor & Wireless Chip industry, it is ranked #4. To see TSEM’s Growth, Value, Stability, and Quality ratings, click here.
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TSEM shares were trading at $44.25 per share on Thursday afternoon, up $1.36 (+3.17%). Year-to-date, TSEM has gained 44.99%, versus a 18.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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