Despite temporary blips, the semiconductor industry has witnessed a sustained increase in demand since the onset of the COVID-19 pandemic due to the extensive usage of chips in electronics, critical infrastructure, electric vehicles, and other industries.
Furthermore, increasing government and corporate spending to ramp up chip production should boost the industry’s growth in the upcoming months. The CHIPS part of the CHIPS and Science Act aims to provide domestic semiconductor manufacturers with $52 billion in subsidies to cut reliance on foreign sourcing while creating local employment opportunities.
The global semiconductor market is predicted to grow at a CAGR of 8.8% from 2022 to 2028 to reach a valuation of $712.4 billion.
Given the industry’s solid long-term prospects, it could be wise to invest in quality semiconductor stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), United Microelectronics Corporation (UMC), Photronics, Inc. (PLAB), and Xperi Inc. (XPER) for outsized gains in the long term.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM provides integrated circuit manufacturing services internationally. This involves manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices.
On October 27, 2022, TSM announced the Open Innovation Platform (OIP) 3DFabric Alliance at the 2022 Open Innovation Platform Ecosystem Forum. TSM’s first-of-its-kind alliance in the semiconductor industry will help customers achieve speedy silicon and system-level innovations and enable next-generation HPC and mobile applications using TSM’s 3DFabric technologies.
During the third quarter of the fiscal year 2022 ended September 30, 2022, TSM’s net sales increased 47.9% year-over-year to NT$613.14 billion ($19 billion), while its income from operations increased 81.5% year-over-year to NT$310.32 billion ($9.62 billion).
During the same period, TSM’s net income increased 79.7% to NT$280.87 billion ($8.70 billion) or NT$10.83 per share, up 79.8% year-over-year.
Analysts expect TSM’s revenue for the fiscal year 2022 to increase 29.4% year-over-year to $74.27 billion, while its EPS is expected to increase 55.8% year-over-year to $6.42. It has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 31.2% over the past month to close the last trading session at $81.50.
TSM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, representing Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TSM has an A grade in Quality and a B for Sentiment. It is ranked #13 of 93 stocks within the Semiconductor & Wireless Chip industry.
Click here for the additional POWR Ratings for Growth, Momentum, Stability, and Value for TSM.
United Microelectronics Corporation (UMC)
UMC operates as a semiconductor wafer foundry internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It is headquartered in Hsinchu City, Taiwan.
On September 22, UMC and Siemens AG (SIEGY) announced their collaboration to develop and implement a new multi-chip 3D integrated circuit (IC) planning, assembly validation, and parasitic extraction (PEX) workflow for UMC’s wafer-on-wafer and chip-on-wafer technologies.
By stacking silicon die or chiplets on top of each other in a single packaged device, UMC could provide its customers greater performance and functionality at lower power and with less space than traditional configurations of laying out multiple chips on a PCB.
On August 24, UMC and Cadence Design Systems, Inc. (CDNS) announced that the Cadence analog/mixed-signal (AMS) IC design flow had been certified for UMC’s 22ULP/ULL process technologies. This flow optimizes process efficiency and shortens design cycle time, accelerating the development of 5G, IoT, and display application designs to meet increasing market demand.
UMC’s operating revenues came in at NT$75.39 billion ($2.47 billion) for the third quarter of 2022, representing a 34.9% year-over-year growth. Its operating income grew 99.3% from the prior-year quarter to NT$30.17 billion ($986.43 million), while the net income attributable to shareholders of the parent increased 54.6% year-over-year last year to NT$ 27 billion ($883.03 million) during the same period.
As a result, UMC’s quarterly earnings per ADS increased 53.3% from the prior-year period to $0.35.
Analysts expect UMC’s revenue and EPS for fiscal 2022 to increase 16.2% and 35.6% year-over-year to $8.94 billion and $1.12, respectively.
UMC has gained 22.2% over the past month to close the last trading session at $7.41.
It is no surprise that UMC has an overall A rating, which translates to Strong Buy in our POWR Rating system. It also has an A grade for Value and Quality.
UMC tops the list of 93 stocks in the Semiconductor & Wireless Chip industry.
Beyond what we’ve stated above, we have also given UMC grades for Growth, Momentum, Stability, and Sentiment. Get all UMC ratings here.
Photronics, Inc. (PLAB)
PLAB manufactures and sells photomask products and services in the United States and internationally. Its products are used to manufacture integrated circuits (ICs) and flat panel displays (FPDs) and to transfer circuit patterns onto semiconductor wafers, FDP substrates, and other electrical and optical components.
PLAB’s revenues increased 28.9% year-over-year to $219.95 million in the fiscal 2022 third quarter ended July 31, 2022. Its operating income grew 123.9% from the year-ago value to $63.73 million, while its net income came in at $49.22 million, up 102.1% year-over-year. The company’s EPS grew 82.1% from the prior-year quarter to $0.51.
Analysts expect PLAB’s revenue and EPS for the fiscal ending October 2023 to increase 5.9% and 9.5% year-over-year to $872.50 million and $2.02, respectively. The company has further impressed by surpassing EPS estimates in each of the trailing four quarters.
The stock has gained 10.7% over the past month to close the last trading session at $18.69.
PLAB has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Sentiment, and Quality.
PLAB is ranked #3 of 93 stocks in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we have also rated PLAB for Stability and Momentum. Get all PLAB ratings here.
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers consumers a seamless end-to-end entertainment experience, from choice to consumption, in the home, in the car, and on the go. The company has three business categories: Pay- TV; Consumer Electronics; Connected Car; and Media Platform.
On October 3, XPER celebrated its first day of trading at the NYSE as it completed its spin-off to become an independent public company. With this, the company realized a strategic milestone as a result of years of continuous effort.
Jon Kirchner, XPER’s CEO, said, “We stand as an independent company with a strong balance sheet, an executive team with substantial tenure, and an exciting path to significant growth and profitability.”
XPER’s revenue came in at $121.64 million for the third quarter that ended September 30, 2022, up 3.3% year-over-year. Its total current assets came in at $336.30 million as of September 30, 2022, compared to $277.14 million as of December 31, 2021.
Analysts expect XPER’s revenue for the fiscal fourth quarter to increase 7.3% sequentially to $130.49 million. For the entire fiscal year, the company’s revenue is expected to increase 2.2% year-over-year to $497.24. The stock dipped 2.3% intraday to close the last trading session at $10.43.
XPER has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. It has a grade of B for Growth, Sentiment, and Quality.
XPER is ranked #3 in the same industry. Click here to see the additional POWR Ratings for Value, Stability, and Momentum for XPER.
TSM shares were trading at $81.21 per share on Monday afternoon, down $0.29 (-0.36%). Year-to-date, TSM has declined -31.66%, versus a -15.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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