The changing U.S. trade policy toward China, supply chain issues propelled by the Russia-Ukraine war, and the Fed’s aggressive monetary policies have damped the demand for semiconductors over the past few months.
However, in its latest quarterly World Fab Forecast report, SEMI announced that the worldwide semiconductor industry is projected to invest more than $500 billion in 84 volume chipmaking facilities starting construction from 2021 to 2023. This reflects the increasing strategic importance of semiconductors to countries and a wide array of industries worldwide.
Furthermore, technological advancements and technology integration in the new digital ecosystem are driving the semiconductor industry’s growth. The semiconductor industry is projected to reach $171.69 billion in the next five years, growing at a CAGR of 6.8%.
Moreover, investors’ interest in chip stocks is evident from the iShares Semiconductor ETF’s (SOXX) 29.3% gains over the past three months, compared to 11.2% returns of the S&P 500.
Given the promising prospects of the industry, fundamentally strong semiconductor stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), STMicroelectronics N.V. (STM), and Photronics, Inc. (PLAB) might be worth buying for the long term.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests, and sells integrated circuits and other semiconductor devices globally. The company’s goods are used in the markets for mobile devices, high-performance computers, and the internet of things.
On October 27, TSM launched the Open Innovation Platform (OIP) 3DFabric Alliance. This new 3DFabric Alliance is the sixth OIP Alliance for TSM and the first of its kind in the semiconductor industry. This should help TSM’s customers to deploy silicon and system-level innovations rapidly.
TSM pays a $1.82 per share dividend annually, which translates to a 2.10% yield on the current price level, while its four-year average dividend yield is 2.49%. Additionally, its dividend payments have grown at a 9.6% CAGR over the past five years.
TSM’s net revenue increased 42.8% year-over-year to $19.93 billion in the fiscal fourth quarter that ended December 31, 2022. Its gross profit grew 68.7% from the prior year’s quarter to $12.40 billion. Also, the company’s net income grew 77.8% from the previous year’s quarter to $9.43 billion, and its EPS grew 78% year-over-year to $0.36.
The consensus revenue estimate of $17.26 billion for the current fiscal quarter ending March 2023 indicates a 2.2% improvement year-over-year. Additionally, TSM has topped consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the four quarters, which is impressive.
The stock has gained 30.3% over the past three months and 16.5% year-to-date to close its last trading session at $86.80.
TSM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TSM has an A grade for Quality. Within the B–rated Semiconductor & Wireless Chip industry, it is ranked #25 out of 93 stocks.
To see additional POWR Ratings for Growth, Value, Sentiment, Stability, and Momentum for TSM, click here.
STMicroelectronics N.V. (STM)
STM is a semiconductor company headquartered in Geneva, Switzerland. The company develops, manufactures, and markets a range of semiconductor products. It has three segments: Automotive and Discrete Group (ADG); Analog, MEMS, and Sensors Group (AMS); and Microcontrollers and Digital ICs Group (MDG).
On December 7, 2022, STM released high-power modules for electric vehicles that boost performance and driving range. STM’s new silicon-carbide (SiC) power modules have been selected for Hyundai’s E-GMP electric-vehicle platform shared by KIA EV6 and several models.
With the recently announced fully integrated SiC substrate manufacturing facility in Catania expected to start production this year, STM is moving quickly to support the rapid market transition towards e-mobility, which should benefit the company significantly.
STM pays an annual dividend of $0.24 that yields 0.58% on the prevailing prices. It has a four-year average dividend yield of 0.80%.
During the fiscal third quarter that ended October 1, 2022, STM’s net revenues increased 35.2% year-over-year to $4.32 billion, while its operating income increased 110.2% to $1.27 billion. The company’s net income increased 131.9% year-over-year to $1.10 billion during the same period. Earnings per share attributable to parent company stockholders rose 127.5% year-over-year to $1.16.
Analysts expect STM’s EPS for the fourth quarter ended December 2022 to be $1.13, indicating a 37.4% year-over-year growth. The company’s revenue for the same quarter is expected to rise 24% from the prior-year quarter to $4.41 billion. Additionally, STM has topped consensus EPS and revenue estimates in each of the trailing four quarters.
It has gained 30.8% over the past six months to close its last trading session at $41.14.
It is no surprise that the company has an overall A rating, which translates to Strong Buy in our POWR Ratings system. STM has a B grade for Growth, Value, and Quality. It is ranked #4 in the Semiconductor & Wireless Chip industry.
Beyond what we’ve stated above, we have also given STM grades for Stability, Sentiment, and Momentum. Get all STM ratings here.
Photronics, Inc. (PLAB)
PLAB produces and sells photomask goods and services in the United States, Taiwan, Korea, Europe, China, and other countries. The company offers photomasks to manufacture integrated circuits and flat panel displays (FPDs) and for transferring circuit patterns onto semiconductor wafers, FDP substrates, and various types of electrical and optical components.
PLAB’s total revenues grew 16% year-over-year to $210.27 million for the fourth quarter that ended October 31, 2022. Its net income attributable to its shareholders rose 87.1% year-over-year to $37.06 million. Also, its EPS came in at $0.60, up 81.8% year-over-year.
Street’s EPS estimate for the fiscal first quarter (ending January 2023) of $0.44 reflects a rise of 15.8% year-over-year. Likewise, the revenue estimate for the same quarter of $208 million indicates an improvement of 9.6% from the prior-year quarter. Additionally, PLAB has topped consensus EPS and revenue estimates in each of the trailing four quarters.
The company has gained 20.9% over the past three months and 15.5% over the past nine months, closing the last trading session at $18.37.
PLAB’s robust prospect is reflected in its POWR Ratings. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
PLAB has an A grade for Value and a B for Sentiment and Quality. It is ranked #5 in the same industry. Click here to see the additional POWR Ratings for PLAB (Growth, Stability, and Momentum).
TSM shares were trading at $89.35 per share on Tuesday morning, up $2.55 (+2.94%). Year-to-date, TSM has gained 19.95%, versus a 4.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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