Despite witnessing a slowdown during the second half of last year, the semiconductor industry reported its highest-ever annual sales, which rose 3.3% year-over-year last year. Although the industry faces the headwinds of high inflation and falling consumer sentiment, industry experts are optimistic about the semiconductor industry’s future, given its ever-rising application in various fields.
In this piece, I have discussed why semiconductor stocks Applied Materials, Inc. (AMAT), Marvell Technology, Inc. (MRVL), STMicroelectronics N.V. (STM), and Nikon Corporation (NINOY) could be better choices than Advanced Micro Devices, Inc. (AMD).
Despite reporting better-than-expected earnings and revenue in the second quarter, popular chip company AMD’s sales forecast for the third quarter was weaker than analyst expectations. The company’s client segment took a considerable hit during the second quarter due to a weak global PC market.
For the fiscal second quarter that ended June 30, 2023, revenues declined 18.2% year-over-year to $5.36 billion, while its adjusted gross profit fell 24.7% year-over-year to $2.67 billion. Moreover, the company’s adjusted net income declined 44% year-over-year to $948 million, and its adjusted EPS decreased 44.8% year-over-year to $0.58.
AMD is also trading at a lofty valuation. In terms of forward EV/EBITDA, AMD’s 44.01x is 196.3% higher than the 14.85x industry average. Likewise, its 7.43x forward EV/Sales is 168.9% higher than the 2.76x industry average. Its 38.95x forward non-GAAP P/E is 70.3% higher than the 22.87x industry average.
For the third quarter, AMD expects revenue to be approximately $5.7 billion, plus or minus $300 million. It expects a non-GAAP gross margin of 51%. AMD’s stock has declined 9.2% in price over the past month. However, the stock has gained 5.2% over the past year to close its last trading session at $107.19.
Although semiconductor revenues are expected to decline 11.2% year-over-year to $532.20 billion in 2023, the long-term outlook for the sector looks optimistic. Semiconductor revenues are expected to rise 18.5% year-over-year to $630.90 billion next year, given the growing use of chips across consumer electronics, defense, industrial machinery, automobiles, networking, etc.
Moreover, the industry is expected to get a boost as the hype around generative AI will likely drive the demand for advanced chips.
Let’s take a closer look at the stocks mentioned above to see how well-positioned they are to capitalize on the industry’s prospects.
Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems; Applied Global Services, and Display and Adjacent Markets.
In terms of the trailing-12-month EBITDA margin, AMAT’s 31.22% is 248.6% higher than the 8.96% industry average. Likewise, its 24.36% trailing-12-month net income margin is significantly higher than the 2.01% industry average. Furthermore, its 29.42% trailing-12-month EBIT margin is 556.8% higher than the 4.48% industry average.
AMAT’s net sales for the second quarter ended April 30, 2023, increased 6.2% year-over-year to $6.63 billion. The company’s income from operations rose 0.9% year-over-year to $1.91 billion. Its non-GAAP net income rose 3.4% year-over-year to $1.69 billion. Additionally, its adjusted EPS increased 8.1% year-over-year to $2.
AMAT surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 42% year-to-date to close the last trading session at $138.25.
AMAT’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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #14 out of 92 stocks. To see AMAT’s Growth, Value, Stability, and Sentiment ratings, click here.
Marvell Technology, Inc. (MRVL)
MRVL is engaged in designing, developing, and selling integrated circuits and other infrastructure semiconductor solutions. The company’s offering caters to five markets- data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial.
On August 16, 2023, MRVL launched a 5nm multi-gigabit copper Ethernet PHY platform. This tech empowers efficient next-gen networks like Wi-Fi 7, offering 10 Gbps performance with half the power of earlier devices. It enhances bandwidth, reach, and link performance in modern data infrastructure, aiding efficient product design and network capacity.
In terms of the trailing-12-month EBITDA margin, MRVL’s 27.40% is 206% higher than the 8.96% industry average. Likewise, its 30.03% trailing-12-month levered FCF margin is 325.5% higher than the 7.06% industry average. Furthermore, the stock’s 4.64% trailing-12-month Capex/Sales is 91.7% higher than the 2.42% industry average.
For the fiscal first quarter ended April 29, 2023, MRVL’s net revenues came in at $1.32 billion. Its non-GAAP gross profit declined 16.3% year-over-year to $792.50 million. The company’s non-GAAP net income decreased 41.1% over the prior-year quarter to $264.2 million. Additionally, its adjusted EPS came in at $0.31, representing a decline of 40.4% year-over-year.
On the other hand, its net cash provided by operating activities rose 7% year-over-year to $208.40 million.
Street expects MRVL’s EPS and revenue for the quarter ending January 31, 2024, to increase 7.6% and 3.5% year-over-year to $0.49 and $1.47 billion, respectively. The stock has gained 55.2% year-to-date to close the last trading session at $57.37.
MRVL’s POWR Ratings are consistent with its uncertain outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Growth, Momentum, Sentiment, and Quality. It is ranked #70 in the same industry. Click here to see MRVL’s Value and Stability ratings.
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM, and its subsidiaries design, develops, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group; Analog, MEMS, and Sensors Group; and Microcontrollers and Digital ICs Group segments.
On April 13, 2023, STM signed a supply agreement with ZF to provide third-generation silicon carbide MOSFET devices for ZF’s vehicle inverters. ZF plans to use this technology in inverters for vehicles from a European car manufacturer, starting in 2025 in order to achieve higher efficiency, power density, and reliability, thereby enhancing electric vehicle performance.
In terms of the trailing-12-month EBITDA margin, STM’s 37.85% is 322.7% higher than the 8.96% industry average. Likewise, its 27.45% trailing-12-month net income margin is significantly higher than the 2.01% industry average. Furthermore, the stock’s 29.78% trailing-12-month EBIT margin is 564.8% higher than the 4.51% industry average.
STM’s net sales for the second quarter ended July 1, 2023, rose 12.7% year-over-year to $4.33 billion. Its gross profit rose 16.5% year-over-year to $2.12 billion. Its operating income increased 14.1% year-over-year to $1.15 billion. The company’s net income attributable to common stockholders rose 15.4% year-over-year to $1 billion.
In addition, its EPS came in at $1.06, representing an increase of 15.2% year-over-year. Also, its net cash from operating activities rose 24.1% year-over-year to $1.31 billion.
Analysts expect STM’s revenues for the quarter ending September 30, 2023, to increase 1.8% year-over-year to $4.38 billion. Its EPS for fiscal 2023 is expected to increase 3.3% year-over-year to $4.33. It surpassed the consensus estimates in three of the four trailing quarters. The stock has gained 29.5% year-to-date to close the last trading session at $46.37.
STM’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #5. Beyond the grades mentioned, we have also rated STM’s Growth, Momentum, and Stability ratings. Get all ratings here.
Nikon Corporation (NINOY)
Headquartered in Minato, Japan, NINOY manufactures and sells optical instruments in Japan, North America, Europe, China, Thailand, and internationally. It operates through Imaging Products Business, Precision Equipment Business, Healthcare Business, Components Business, and Industrial equipment, and others segments.
On April 27, 2023, NINOY announced that its US subsidiary, Nikon Americas Inc., will acquire Avonix Imaging, a company specializing in X-ray and CT systems. The acquisition aims to enhance Nikon’s digital manufacturing business and provide innovative solutions for manufacturing needs, especially in the automotive and aerospace sectors.
In terms of the trailing-12-month EBITDA margin, NINOY’s 11.95% is 11.3% higher than the 10.74% industry average. Likewise, its 45.08% trailing-12-month gross profit margin is 27.3% higher than the 35.41% industry average. Furthermore, the stock’s 5.57% trailing-12-month net income margin is 33.2% higher than the 4.18% industry average.
For the fiscal first quarter ended June 30, 2023, NINOY’s revenues increased 8.6% year-over-year to ¥158.15 billion ($1.08 billion). Its total comprehensive income for the period rose 7.6% year-over-year to ¥33.89 billion ($232.43 million). Its profit attributable to owners of parent came in at ¥2.58 billion ($17.69 million). Additionally, its EPS came in at ¥7.40.
For the quarter ending September 30, 2024, NINOY’s revenue is expected to increase 15.9% year-over-year to $1.17 billion. The stock has gained 17.1% year-to-date to close the last trading session at $10.51.
NINOY’s POWR Ratings are consistent with its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. It is ranked #11 in the same industry. In addition to the POWR Ratings grades I’ve just highlighted, you can see the NINOY ratings for Growth, Momentum, and Sentiment here.
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AMD shares were trading at $105.34 per share on Thursday afternoon, down $1.85 (-1.73%). Year-to-date, AMD has gained 62.64%, versus a 15.59% 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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