High demand, policy support, and corporate investments to ramp up production helped the semiconductor industry register an 18% rise in sales globally in May 2022. In the Americas, sales were up 36.9% year-over-year.
Though the Russia-Ukraine conflict and tensions related to Taiwan between China and the United States continue to affect the supply chain, the growing demand and development of advanced chips with lower latency and power consumption should allow the industry to stay afloat.
Investors’ interest in this space is evident from the SPDR S&P Semiconductor ETF’s (XSD) 7.4% gains over the past week versus the SPDR S&P 500 Trust ETF’s (SPY) 2% returns. The global semiconductor market is expected to grow at a 9.2% CAGR to $893.10 billion by 2029.
Wall Street analysts expect quality chip stocks NVIDIA Corporation (NVDA) and Lattice Semiconductor Corporation (LSCC) to surge significantly in the upcoming months. Therefore, these stocks could be solid additions to your watchlist.
NVIDIA Corporation (NVDA)
NVDA designs and manufactures computer graphics processors, chipsets, and related multimedia software in gaming, professional visualization, data center, and automotive markets.
It serves OEMs, ODMs, system builders, add-in board manufacturers, retailers/distributors, internet and cloud service providers, mapping companies, and other ecosystem participants.
On June 29, 2022, NVDA and Siemens AG (SIEGY), a German industrial automation and manufacturing company, expanded their partnership to enable the industrial metaverse and increase the use of AI-driven digital twin technology to bring industrial automation to a new level.
Adding NVDA’s NVIDIA Omniverse to the open Siemens Xcelerator partner ecosystem will accelerate the use of digital twins that can deliver enhanced productivity and improvements across the production and product life cycles. This will help the companies to introduce industrial metaverse and lead in the markets.
For the fiscal 2023 first quarter ended May 1, 2022, NVDA’s revenue increased 46.4% year-over-year to $8.29 billion. The company’s non-GAAP gross profit came in at $5.56 billion, representing a 48.5% rise from the prior-year period. Its non-GAAP income from operations came in at $3.96 billion for the quarter, increasing 54.7% from the prior-year period.
NVDA’s non-GAAP net income came in at $3.44 billion, up 48.9% from the year-ago period. Its non-GAAP EPS came in at $1.36, indicating a 49.5% year-over-year improvement. As of May 1, 2022, the company had $3.89 billion in cash and cash equivalents.
The consensus EPS estimate of $5.43 for fiscal 2023 ending January 31, 2023, indicates a 22.3% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. NVDA’s revenues are expected to be $33.60 billion for the same fiscal year, up 24.9% from the prior-year period. Its EPS is expected to grow at 22.8% per annum over the next five years.
The company’s levered free cash flow has grown 107.2% over the past year, 808.9% above the industry average of 11.8%. Its EBITDA growth of 79.7% over the past year is 270.8% higher than the 21.5% industry average.
NVDA’s 42% trailing-12-month ROE is 486.3% higher than the 7.2% industry average. It has a 20.9% trailing-12-month ROA, 599.5% higher than the 3% industry average. The stock has gained 9.1% over the past week to close the last trading session at $158.38. The average analyst price target of $261.67 indicates a 71.8% upside potential.
NVDA’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Quality. Click here to see the additional ratings for NVDA’s Value, Growth, Momentum, Sentiment, and Stability.
NVDA is ranked #70 of 95 stocks in the B-rated Semiconductor & Wireless Chip industry.
Lattice Semiconductor Corporation (LSCC)
LSCC develops and sells semiconductor products that offer field-programmable gate arrays that consist of Certus-NX and ECP, MachXO, iCE40, and CrossLink product families. It licenses its technology portfolio through standard IP and IP core licensing, patent monetization, and IP services.
It serves OEMs in the communications and computing, consumer, industrial and automotive end markets and sells its products directly to end customers and indirectly through a network of independent manufacturers’ representatives and independent distributors.
On July 6, 2022, LSCC collaborated with Alphabet Inc.’s (GOOGL) and Lenovo Group Limited (LNVGY) to equip their latest Lenovo IdeaPad Flex 5i Chromebook to leverage the companies’ combined hardware and software expertise and enable advanced user presence detection and privacy features.
The laptop and these new capabilities are powered by LSCC’s Lattice low-power FPGAs built on the award-winning Lattice Nexus platform. This should help LSCC to expand its footprint in the Client Computing space.
For its fiscal 2022 first quarter ended April 2, 2022, LSCC’s revenue increased 30.1% year-over-year to $150.52 million. The company’s non-GAAP gross profit came in at $101.89 million, indicating a 42.8% rise from the year-ago period. Its non-GAAP income from operations came in at $54.65 million for the quarter, representing a 68.6% rise from the prior-year period.
While its non-GAAP net income increased 71.7% year-over-year to $52.70 million, its non-GAAP EPS grew 68.2% to $0.37. As of April 2, 2022, the company had $122.99 million in cash and cash equivalents.
The consensus EPS estimate of $1.59 for fiscal 2022 ending December 31, 2022, shows a 50% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters. Analysts expect LSCC’s revenue to be $634.26 million for the same fiscal year, indicating a 23.1% year-over-year improvement. Its EPS is expected to grow at a 15% rate per annum over the next five years.
The company’s levered free cash flow has grown 70.8% over the past year, 500.6% above the industry average of 11.8%. Its EBITDA growth of 62.9% over the past year is 192.3% higher than the 21.5% industry average. The stock has lost 4.8% over the past month. The average analyst price target of $71.14 indicates a 49% upside potential.
LSCC’s 27.8% trailing-12-month ROE is 289.1% higher than the 7.2% industry average. It has a 15.7% trailing-12-month ROA, 425% higher than the 3% industry average. The stock has gained 8.2% over the past week to close the last trading session at $49.01.
LSCC’s POWR Ratings reflect its solid prospects. It has a B grade for Growth and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see LSCC’s Momentum, Value, Stability, and Sentiment ratings here.
The stock is ranked #43 in the same industry.
NVDA shares were trading at $152.91 per share on Monday afternoon, down $5.47 (-3.45%). Year-to-date, NVDA has declined -47.99%, versus a -18.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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