The semiconductor industry has witnessed skyrocketing 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. The global semiconductor market is expected to reach $893.10 billion in 2029, growing at a CAGR of 9.2%.
The ever-increasing demand and lingering supply disruptions due to ongoing Taiwan-China tensions have intensified the global semiconductor shortage. However, the industry is benefitting from price increases.
Furthermore, increasing government and corporate spending to ramp up production should boost the industry’s growth in the coming months. President Joe Biden has recently signed the CHIPS and Science Act. The CHIPS part of the Act aims to provide domestic semiconductor manufacturers with $52 billion in subsidies to cut reliance on foreign sourcing, increase competitiveness with China and other foreign rivals, and create local employment opportunities in due process.
Given the industry’s solid growth prospects, we think it could be wise to invest in quality semiconductor stocks Micron Technology Inc. (MU), QUALCOMM Incorporated (QCOM), MaxLinear Inc. (MXL), Onto Innovation Inc. (ONTO), and Photronics, Inc. (PLAB).
Micron Technology, Inc. (MU)
MU is engaged in the designing, manufacturing, and selling of memory and storage products internationally. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.
On August 9, 2022, MU announced an investment of $40 billion in leading-edge memory manufacturing in the United States. The company expects to begin production in the second half of the decade, ramping overall supply in line with industry demand trends.
MU President and CEO Sanjay Mehrotra said, “This legislation (CHIPS and Science Act) will enable Micron to grow domestic production of memory from less than 2% to up to 10% of the global market in the next decade, making the U.S. home to the most advanced memory manufacturing and R&D in the world.”
For the third quarter ended June 2, 2022, MU’s revenue increased 16.4% year-over-year to $8.64 billion. The company’s non-GAAP gross profit rose 28.6% year-over-year to $4.10 billion, while its non-GAAP operating income increased 33% from the prior-year value to $3.14 billion. Its non-GAAP net income came in at $2.94 billion, up 35.3% year-over-year. Also, its non-GAAP EPS grew 37.8% year-over-year to $2.59.
Analysts expect MU’s EPS and revenue for the fiscal year 2022 (ending August 2022) to come in at $8.37 and $31.05 billion, indicating a growth of 38.1% and 12.1% year-over-year, respectively. The company has an impressive earnings surprise history, as it has topped the consensus EPS estimates in each trailing four quarters.
MU’s stock has gained marginally over the past month to close the last trading session at $61.62.
MU’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates 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 Value and a B for Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #37 of 95 stocks. To see additional POWR Ratings of MU for Growth, Momentum, Stability, and Sentiment, click here.
QUALCOMM Incorporated (QCOM)
QCOM is engaged in developing and commercializing foundational technologies for the global wireless industry. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
The company develops and supplies integrated circuits, system software, and other technologies for wireless communications, networking, and global positioning system products. In addition, QCOM grants rights and licenses to use portions of its intellectual property portfolio and invests in early-stage companies in various industries.
In July, QCOM expanded its strategic partnership with Samsung Electronics Co., Ltd. (KRX) through 2030 for 3G, 4G, 5G, and upcoming 6G mobile technology.
Cristiano Amon, QCOM’s president and chief executive officer, said, “For more than two decades, we’ve worked together to lead the industry, and we are pleased to continue this strategic partnership to develop innovative technologies and products using Snapdragon platforms to power more Samsung premium devices globally.” This development is expected to add stability and growth to QCOM’s earnings in the years ahead.
In the fiscal 2022 third quarter ended June 26, 2022, QCOM’s net revenues increased 36.7% year-over-year to $10.93 billion. The company’s non-GAAP EBIT came in at $3.89 billion, up 53% from the prior-year period. Its non-GAAP net income improved 52.5% year-over-year to $3.36 billion. The company’s non-GAAP EPS increased 54.2% from its year-ago value to $2.96.
Analysts expect QCOM’s revenue for the fiscal 2022 fourth quarter (ending September 2022) to come in at $11.42 billion, representing 22.6% year-over-year growth. The $3.16 consensus EPS estimate for the ongoing quarter represents a 23.8% rise from the prior-year period. It’s no surprise that the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
QCOM has gained 3.5% over the past month and 2.9% over the past year to close the last trading session at $148.53.
QCOM has an overall POWR Rating of B, which translates to a Buy in our proprietary rating system. The stock has a grade of B for Quality. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #29 of 95 stocks.
Beyond what we’ve stated above, we have also given QCOM grades for Growth, Momentum, Value, Stability, and Sentiment. Get all QCOM ratings here.
MaxLinear, Inc. (MXL)
MXL offers radiofrequency, high-performance analog, and mixed-signal communications systems-on-chip solutions for a connected home, wired and wireless infrastructure and industrial and multi-market applications worldwide. The company serves electronics distributors, original equipment manufacturers (OEMs), and original design manufacturers (ODMs).
On August 10, 2022, MXL and DustPhotonics, a leading silicon photonics technology and solutions developer, announced their partnership to launch a silicon photonics chipset with integrated lasers directly driven from a DSP without the use of any external driver chip. The product is expected to perform exceptionally and boost MXL’s product portfolio.
MXL’s net revenue for the second quarter ended June 30 came in at $280.01 million, up 36.3% year-over-year. Its non-GAAP income from operations increased 86.4% year-over-year to $90.14 million. The company’s non-GAAP net income rose 114.8% from its year-ago value to $89.33 million. In addition, its non-GAAP EPS for the quarter came in at $1.11, up 109.4% year-over-year.
Analysts expect MXL’s revenue for the fiscal year 2022 to increase 24.9% from the last year to $1.11 billion. Also, Street expects MXL’s EPS for the current year to grow 55.1% year-over-year to $4.17. The company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 9.4% to close the last trading session at $38.81.
MXL has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and a B for Quality and Value. It is ranked #8 among 95 stocks in the Semiconductor & Wireless Chip industry.
We’ve also rated MXL for Momentum, Sentiment, and Stability. Get all MXL ratings here.
Onto Innovation Inc. (ONTO)
ONTO is involved in designing, developing, manufacturing, and supporting process control tools used by bare silicon wafer manufacturers, semiconductor wafer fabricators, and advanced packaging manufacturers worldwide. The company also provides spare parts and software licensing services.
On July 12, 2022, ONTO announced that it had received repeat orders of its Atlas® V optical critical dimension (OCD) platform for Gate-All-Around (GAA) development and pilot production. This is a step in the right direction, considering the industry's migration from FinFET transistors toward GAA (nanosheet) devices for greater sophistication in dimensional metrology.
On July 11, 2022, ONTO launched the new Echo™ system as an evolutionary addition to its family of acoustic metrology products. Introducing a new product is expected to expand the addressable market for in-line characterization of opaque films, estimated to be $110 million.
For the fiscal 2022 second quarter ended July 2, 2022, ONTO’s revenue increased 32.5% year-over-year to $256.31 million. The company’s non-GAAP operating income and net income rose 47.2% and 39.5% year-over-year to $73.10 million and $64 million, respectively. The Non-GAAP earnings per share for the quarter came in at $1.28, up 39.1% year-over-year.
Analysts expect ONTO’s revenue for fiscal 2022 to come in at $1.01 billion, indicating an increase of 27.7% year-over-year. In addition, Street expects the company’s EPS to grow 36.5% year-over-year for the ongoing year to $5.27. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each trailing four quarters.
ONTO has gained 10.3% over the past month and 17.5% over the past year to close the last trading session at $79.03.
ONTO’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our POWR Ratings system. ONTO has a B grade for Growth, Momentum, Sentiment, and Quality. It is ranked #19 in the same industry.
Click here to access the additional POWR Ratings for ONTO (Value and Stability).
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% year-over-year to $204.51 million in the fiscal 2022 second quarter ended May 1, 2022. Its operating income grew 150.4% from the year-ago value to $52.11 million, while its net income came in at $45.44 million, up 178.4% year-over-year. The company’s EPS grew 188.2% from the prior-year quarter to $0.49.
Analysts expect PLAB’s revenue for the fiscal third quarter (ending July 2022) to come in at $210 million and for the fiscal year 2022 to come in at $818.87 million, indicating increases of 23.1% and 23.4% year-over-year, respectively. Also, the company’s EPS is expected to grow 78.6% year-over-year to $0.50 for the current quarter and 112% year-over-year to $1.89 for the current year.
PLAB has gained 79.6% over the past year to close the last trading session at $23.33.
PLAB’s strong fundamentals have earned it an overall rating of A, translating to a Strong Buy in our POWR Ratings system. PLAB also has a B grade in Quality, Sentiment, Value, Momentum, and Growth. It is ranked #5 among 95 stocks in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we’ve also rated PLAB for Stability. Get all PLAB ratings here.
MU shares were unchanged in after-hours trading Thursday. Year-to-date, MU has declined -32.16%, versus a -9.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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