Although ASML in Veldhoven, Netherlands, reported robust financial performance in its last reported quarter, analysts expect its EPS to decrease 52.3% year-over-year to $1.84, and its revenue to decline 27.6% to $3.80 billion for the first quarter, ending March 31, 2022. In addition, ASML's Berlin factory was recently destroyed by a fire, which hampered the production of DUV and wafer clamp, a module used to produce its EUV systems that cost $60 million and $150 million, respectively. Hence, a delay in producing even a single system could drastically reduce ASML's revenue. The stock is down 27.5% in price year-to-date.
In addition, the escalating war between Ukraine and Russia has disturbed the global supply of neon gas, which is essential for ASML in producing gas-phase lasers in its DUV systems. So, we think the stock is best avoided now.
However, the rising demand for semiconductor chips in electric vehicles and other electronics should drive the semiconductor market’s growth. The industry should also benefit from a production ramp-up with the help of government and private investments. The global semiconductor manufacturing equipment is projected to reach $175 billion by 2027, growing at an 8.5% CAGR. Therefore, we think fundamentally sound stocks QUALCOMM Incorporated (QCOM), Applied Materials, Inc. (AMAT), and Micron Technology, Inc. (MU) are better bets to capitalize on the industry tailwinds.
Click here to checkout our Semiconductor Industry Report for 2022
QUALCOMM Incorporated (QCOM)
San Diego, Calif.-based QCOM develops and commercializes foundational technologies for the wireless industry worldwide. It operates through three segments, Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
Last month, QCOM and First announced a partnership to engage and empower future innovators. To stay at the forefront of innovation, QCOM is investing in developing tomorrow's workforce through STEM (science, technology, engineering, math). QCOM has provided education technology, funded youth programs, and promoted the importance and access of STEM engagement.
Last December, QCOM customized Education-as-a-Service (EaaS) IoT platform that allows educators to think in a new way about the role that technology can play, not only in the classrooms but also on campuses. Furthermore, QCOM works with companies such as OneScreen and HoverCam to bring smart classrooms and hybrid learning settings to U.S. school districts.
In the first quarter, ended Dec. 26, 2021, the non-GAAP revenue of QCOM increased 30% year-over-year to $10.70 billion. Its operating income grew 45.8% from its year-ago value to $3.86 billion, while its non-GAAP net income increased 46.9% from its prior period to $3.69 billion. The company's non-GAAP EPS rose 48.8% year-over-year to $3.23.
The consensus EPS estimate for the second quarter, ending March 2022, represents 53.6% year-over-year growth to $2.92. Analysts expect its revenue to increase 33.8% year-over-year to $10.60 billion in the second quarter, ended March 31, 2022. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 8.7% in price over the past year.
QCOM's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has a B grade for Growth, Value, and Sentiment. Within the B-rated Semiconductor & Wireless Chip Industry, it is ranked #3 of 97 stocks. To see additional POWR Ratings for Quality, Stability, and Momentum for QCOM, click here.
Applied Materials, Inc. (AMAT)
AMAT is engaged in providing manufacturing equipment, services, and software to the semiconductor, display, and related industries. The Santa Clara, Calif.-based concern operates primarily through three segments: Semiconductor System; Applied Global Services; and Display and Adjacent Markets.
AMAT's net sales increased 21.5% year-over-year to $6.27 billion for the first quarter, ending Jan. 30, 2022. Its income from operations increased 54% from its year-ago value to $1.98 billion, while its non-GAAP adjusted net income grew 32.3% from its prior period quarter to $1.70 billion. Its non-GAAP adjusted EPS increased 36% year-over-year to $1.89.
Analysts expect AMAT's revenue to increase 14% year-over-year to $6.36 billion for the second quarter, ending April 2022. The company's EPS is expected to grow 17.5% year-over-year to $1.92 in the second quarter, ending April 31, 2022. And it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The company's shares have soared 5.1% over the past year.
AMAT's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Momentum and Quality. In the Semiconductor & Wireless Chip industry, it is ranked 27.
In total, we rate AMAT on eight distinct levels. Beyond what we have stated above, we have also given AMAT grades for Growth, Value, Stability, and Sentiment. Get all the AMAT ratings here.
Micron Technology, Inc. (MU)
MU in Boise, Idaho, designs, manufactures, and sells memory and storage products worldwide and operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit. It provides memory and storage technologies that comprise DRAM products, NAND products, and NOR memory products.
This month, MU announced that it is sampling the world's first vertically-integrated 176-layer NAND solid-state drive (SSD) for the data center. The Micron 7450 SSD with NVMeTM delivers quality-of-service (QoS) latency at or below two milliseconds (ms), a wide capacity range, and the broadest set of available form factors to meet the requirements of the most demanding data center workloads.
During the first quarter, which ended Dec. 2, 2021, MU's non-GAAP revenue increased 33.2% year-over-year to $7.69 billion. Its non-GAAP operating income grew 180% year-over-year to $2.73 billion, while its non-GAAP net income increased 175.5% from its year-ago value to $2.47 billion. The company's non-GAAP EPS rose 176.9% from the prior-year quarter to $2.16.
MU is expected to generate $7.53 billion in revenue, representing year-over-year growth of 20.8% in the second quarter (ended February 2022). The $1.98 consensus EPS estimate for the second quarter indicates a 101.7% improvement year-over-year. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
It is no surprise that MU has an overall A rating, which equates to Strong Buy in our POWR Ratings system. MU has a B grade for Sentiment, Value, and Growth. Within the Semiconductor & Wireless Chip industry, it is ranked #5.
Click here to see the additional POWR Ratings for MU (Stability, Quality, and Momentum).
Click here to checkout our Semiconductor Industry Report for 2022
QCOM shares were trading at $142.26 per share on Tuesday afternoon, up $0.97 (+0.69%). Year-to-date, QCOM has declined -21.85%, versus a -11.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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