The chip industry growth is driven by rising demand across industries and favorable government policies. Given the industry’s steady growth prospects, investors could consider quality chip stocks Everspin Technologies, Inc. (MRAM), Photronics, Inc. (PLAB), and Infineon Technologies AG (IFNNY) this week.
A multitude of applications, encompassing AI, AR/VR, Internet of Things (IoT), autonomous vehicles, electric vehicles, High-Performance Computing (HPC), aerospace, satellite communications, 5G/6G, smart cities, health tech, and more, all dependending on advancements in semiconductor technologies are boosting the chip sector’s growth.
According to a report by Custom Market Insights, the global semiconductor chip market is expected to grow at a CAGR of 7.1% to reach $1.12 trillion by 2032.
In addition, favorable government policies and spending should also boost the industry’s prospects. In July 2022, President Biden enacted the CHIPS and Science Act, allocating around $53 billion toward enhancing U.S. semiconductor manufacturing, research, and workforce. This legislation includes a 25% tax credit for capital investments in semiconductor manufacturing.
Moreover, according to the global industry association, SEMI’s mid-year forecast, global sales of total semiconductor manufacturing equipment are projected to rebound in 2024. After an estimated contraction of 18.6% in 2023, sales are expected to reach $87.40 billion, following the industry record of $107.40 billion in 2022.
With these favorable trends in mind, let's delve into the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells magneto resistive random access memory (MRAM) products in the United States, Hong Kong, Japan, China, Canada, Germany, and internationally.
MRAM’s trailing-12-month gross profit margin of 56.33% is 17.6% higher than the 47.89% industry average. Its trailing-12-month net income margin of 11.65% is 479.4% higher than the 2.01% industry average.
In the second quarter (ended June 30, 2023), MRAM’s total revenues increased 7.1% year-over-year to $15.75 million, while its gross profit grew 7% from the year-ago value to $9.19 million.
The company’s net income came in at $3.88 million and $0.18 per share, representing 132.5% and 125% year-over-year improvements. Also, its adjusted EBITDA stood at $5.43 million, up 66.7% from the prior-year quarter.
Analysts expect MRAM’s revenue for the third quarter (ending September 30, 2023) to increase 4.3% year-over-year to $15.90 million. Its EPS is expected to be $0.13 in the same quarter. Moreover, the stock topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is promising.
MRAM’s shares have gained 48.8% over the past nine months and 80.9% year-to-date to close the last trading session at $10.06.
MRAM’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.
The stock has an A grade for Sentiment and a B in Value, Momentum, and Quality. It is ranked #4 out of 92 stocks in B-rated the Semiconductor & Wireless Chip industry.
Click here to see the other ratings of MRAM (Growth and Stability).
Stock #2: Photronics, Inc. (PLAB)
PLAB engages in the manufacture and sale of photomask products and services in the United States, Taiwan, China, Korea, Europe, and internationally.
PLAB’s trailing-12-month EBIT margin of 28.40% is 536% higher than the 4.47% industry average. Its trailing-12-month net income margin of 14.04% is 598% higher than the 2.01% industry average.
For the second quarter that ended April 30, 2023, PLAB’s revenue increased 12.1% year-over-year to $229.31 million. Its gross profit grew 25.9% from the year-ago value to $88.40 million. Moreover, the company’s non-GAAP net income and non-GAAP EPS rose 42.7% and 42.1% from the previous year’s quarter to $32.94 million and $0.54, respectively.
The consensus revenue estimate of $901.40 million for the fiscal year ending October 2023 indicates a 9.3% year-over-year improvement. The consensus EPS estimate of $2.00 for the current year reflects a 3.1% rise year-over-year. Also, the company topped the consensus revenue and EPS estimates in all four trailing quarters.
The stock has surged 41% year-to-date, closing the last trading session at $23.73.
PLAB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B in Quality, Value, and Sentiment. Within the same industry, it is ranked #3.
Beyond what is stated above, we’ve also rated PLAB for Growth and Stability. Get all PLAB ratings here.
Stock #1: Infineon Technologies AG (IFNNY)
Headquartered in Neubiberg, Germany, IFNNY designs, develops, manufactures, and markets semiconductors and related system solutions worldwide.
On August 8, 2023, IFNNY, Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM), Robert Bosch GmbH, and NXP Semiconductors N.V. (NXPI) announced a plan to jointly invest in European Semiconductor Manufacturing Company (ESMC) GmbH, in Dresden, Germany to provide advanced semiconductor manufacturing services.
ESMC marks a significant step towards the construction of a 300mm fab to support the future capacity needs of the fast-growing automotive and industrial sectors, with the final investment decision pending confirmation of the level of public funding for this project. The project is planned under the framework of the European Chips Act.
On July 28, 2023, IFNNY and SolarEdge Technologies, Inc. (SEDG), a global leader in smart energy technology, announced signing a multi-year Capacity Reservation Agreement (CRA).
IFNNY’s trailing-12-month EBIT margin of 25.68% is 474.9% higher than the 4.47% industry average. Its trailing-12-month net income margin of 19.13% is 851.3% higher than the 2.09% industry average.
IFNNY pays $0.34 annually as dividends. This translates to a yield of 0.94% at the current market price, compared to the 4-year average dividend yield of 1.01%.
In the fiscal third quarter, which ended June 30, 2023, IFNNY’s revenue increased 13% year-over-year to €4.09 billion ($4.46 billion). The company’s profit for the period came in at €831 million ($905.53 million), up 60.7% from the prior year’s quarter. In addition, its adjusted EPS grew 38.8% from the year-ago value to €0.68.
Street expects IFNNY’s revenue for the fiscal fourth quarter (ending September 30, 2023) to increase 4.2% year-over-year to $4.46 billion. The company has surpassed consensus revenue estimates in three of its trailing four quarters.
The stock has gained 45.1% over the past year and 19.9% year-to-date to close the last trading session at $36.15.
It’s no surprise that IFNNY has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Momentum. Within the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have IFNNY’s ratings for Growth, Quality, and Sentiments. Get all IFNNY ratings here.
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IFNNY shares were trading at $36.08 per share on Thursday morning, down $0.07 (-0.20%). Year-to-date, IFNNY has gained 20.38%, versus a 19.18% 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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