The ongoing supply crunch for chips has hampered production across industries, but the situation is expected to improve this year. According to the Semiconductor Industry Association, the semiconductor industry has announced nearly $80 billion in new investments in the United States through 2025. Moreover, the Senate passed the U.S. Innovation and Competition Act last year, allocating $52 billion to increase semiconductor production in the United States. The semiconductor industry’s prospects look bright, considering solid funding and the unprecedented demand from several sectors. “I think we are expecting it to grow maybe double-digit —15% to 20% over the next three to five years,” a top semiconductor analyst Gokul Hariharan at JPMorgan said.
Advanced Micro Devices, Inc. (AMD) is one of the notable names in the semiconductors industry. AMD shares surged after the company posted better-than-expected results for the fourth quarter and issued a solid first-quarter sales outlook on February 1. However, the stock has slumped 2.2% intraday to close yesterday’s trading session at $120.08. Also, the stock has declined 16.6% year-to-date. In addition, Piper Sandler analysts downgraded the stock to Neutral from Overweight and reduced its price target. He also noted that AMD could face headwinds in the near term from the closing of the planned acquisition of Xilinx, Inc. (XLNX).
Given this backdrop, we think quality semiconductor stocks Texas Instruments Incorporated (TXN), Applied Materials, Inc. (AMAT), and KLA Corporation (KLAC) could be better bets to capitalize on the industry’s growth.
Texas Instruments Incorporated (TXN)
TXN manufactures and sells semiconductors to electronics designers and manufacturers through direct sales and distributors and its website worldwide. It operates in two segments: Analog and Embedded Processing.
Last month, TXN launched the industry’s widest-bandwidth high-input-impedance (Hi-Z) buffer amplifier. It simplifies the front-end designs and increases signal bandwidth in data-acquisition systems. This industry-leading buffer amplifier should be widely in demand and garner significant returns for the company.
TXN also launched its new AWR2944 radar sensor to help automakers improve how advanced driver assistance systems (ADAS) sense objects. This marks a prominent addition to its extensive portfolio of analog and embedded processing products and technologies.
TXN’s revenue increased 18.5% year-over-year to $4.83 billion in the fiscal fourth quarter ended December 31. Its operating profit grew 38.1% from the year-ago value to $2.50 billion. Net income came in at $2.14 billion, indicating an improvement of 26.7% year-over-year. Its EPS increased 26.1% from its year-ago value to $2.27.
Street expects the company’s revenue to increase 10.3% year-over-year to $4.73 billion in the fiscal first quarter ending March 2022. The consensus EPS estimate of $2.19 indicates a rise of 14.3% year-over-year. In addition, TXN has topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
TXN shares have gained 4.2% over the past year to close their last trading session at $175.59
TXN’s POWR Ratings reflect this promising outlook. The company 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.
TXN is rated a B in Momentum, Sentiment, and Quality. Within the A-rated Semiconductor & Wireless Chip industry, it is ranked #31 of 100 stocks.
In addition to the POWR Ratings grades highlighted, you can see the TXN’s Growth, Value, and Stability ratings here.
Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. It operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
In December 2021, AMAT and the Institute of Microelectronics (IME), a research institute of Singapore’s Agency for Science, Technology, and Research, announced a new phase of their research collaboration at the Center of Excellence in Advanced Packaging in Singapore. “We are excited to extend our research collaboration with A*STAR’s IME and look forward to accelerating hybrid bonding technology and further innovations in 3D chip integration technologies for the semiconductor and computing industries,” said Dr. Prabu Raja, Senior Vice President and General Manager of the Semiconductor Products Group at Applied Materials.
In October 2021, AMAT introduced the eBeam metrology system enabling a new playbook for patterning control optimized for the most advanced logic and memory chips. This new class of metrology aims to allow customers to move from the old patterning control with enhanced resolution, speed, accuracy.
AMAT’s revenue increased 30.6% year-over-year to $6.12 billion in the fiscal fourth quarter ended October 31. Its non-GAAP operating income grew 53.1% from the year-ago value to $2.03 billion, while non-GAAP net income came in at $1.76 billion, indicating an improvement of 53% year-over-year. Its non-GAAP EPS increased 55.2% from its year-ago value to $1.94.
The consensus revenue estimate of $6.17 billion for the fiscal first quarter ended January 2022 indicates an increase of 19.5% year-over-year, while the consensus EPS estimate of $1.86 indicates a rise of 33.6% year-over-year. In addition, AMAT has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 36.7% over the past year and 3.1% over the past five days to close its last trading session at $136.51.
It’s no surprise that AMAT has an overall rating of B, which translates to Buy in our proprietary rating system. AMAT is rated a B in Momentum and Quality. It is ranked #32 in the Semiconductor & Wireless Chip industry. Click here to see the AMAT ratings for Growth, Value, Stability, and Sentiment.
KLA Corporation (KLAC)
KLAC designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide. Its segment includes Semiconductor Process Control; Specialty Semiconductor Process; PCB, Display and Component Inspection; and Other.
On February 2, KLAC declared a quarterly dividend of $1.05 per share on its common stock, payable on March 1, 2022. The dividend is payable to shareholders of record as of the close of business on February 14, 2022.
In December 2021, KLAC announced its new goal of a complete transition to using renewable electricity across its global operations by 2030. This formalizes the company’s commitment to sustainability and emission control initiatives.
KLAC’s total revenues increased 42.5% year-over-year to $2.35 billion in the fiscal second quarter ended December 31. Non-GAAP net income attributable to KLA stood at $851.04 million, indicating an increase of 68.8% from the prior-year quarter, while free cash flow came in at $745.90 million, indicating an improvement 48.6% year-over-year. Its non-GAAP EPS increased 72.5% from its year-ago value to $5.59.
Analysts expect the company’s revenue to increase 22.6% year-over-year to $2.21 billion for the fiscal third quarter ending March 2022. The consensus EPS estimate of $4.85 indicates a rise of 26% year-over-year. KLAC has topped the consensus EPS estimates in each of the trailing four quarters
Over the past year, the stock has gained 30.5% to close its last trading session at $373.68. KLAC shares have gained 7.7% over the past six months.
KLAC’s POWR Ratings reflect its solid fundamentals. The company has an overall rating of B, which translates to Buy in our proprietary rating system.
KLAC has a Quality grade of A and a Momentum grade of B. It is ranked #49 in the same industry. To see additional KLAC ratings for Growth, Value, Stability, and Sentiment, click here.
TXN shares were trading at $172.17 per share on Friday afternoon, down $3.42 (-1.95%). Year-to-date, TXN has declined -8.04%, versus a -4.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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