The semiconductor industry is witnessing a surge in global demand for Artificial Intelligence (AI) and High-Performance Computing (HPC), alongside stable requirements for smartphones, personal computers, infrastructure, and resilient growth in the automotive sector.
Considering the optimistic outlook, it could be wise to scoop shares of fundamentally solid chip stocks ASE Technology Holding Co., Ltd. (ASX), QUALCOMM Incorporated (QCOM), and Photronics, Inc. (PLAB), currently favored by investors. Before delving into the featured stocks, let us analyze industry projections for the near future.
Following a challenging year with a 9.4% sales decline to $520 billion in 2023, the chip industry is poised for a robust recovery, projecting a 13% surge to $588 billion in 2024, according to Deloitte. Sectors such as PCs and smartphones, which faced setbacks in 2023, are also anticipated to rebound with a 4% growth in 2024.
As smartphone demand recovers and the need for AI chips intensifies, IDC anticipates the semiconductor market to resume a growth trajectory in 2024, projecting an annual growth rate exceeding 20%. Concurrently, Gartner (IT) forecasts a parallel surge, estimating a 16.8% growth in global semiconductor revenue, reaching $624 billion.
Additionally, the World Semiconductor Trade Statistics (WSTS) 2024 outlook envisions an upswing in the global semiconductor market, projecting a 13.1% increase to $588 billion. The prime driver of this growth is anticipated to be the memory sector, which is set to soar to about $130 billion, marking an upward trend of over 40% from the preceding year.
The latest quarterly World Fab Forecast report from SEMI also projects a 6.4% increase in global semiconductor capacity in 2024, surpassing 30 million wafers per month (wpm) for the first time, following a 5.5% rise to 29.6 wpm in 2023. Growth is expected to be propelled by capacity expansions in cutting-edge logic and foundry, applications such as generative AI and HPC, and the rebound in end-demand for chips.
In light of these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX’s Integrated Circuit (IC) division offers packaging services, while the Electronic Manufacturing Service segment specializes in developing electronic products. The company also provides additional services, encompassing real estate development, construction, property sales, and more.
ASX’s trailing-12-month EBITDA margin of 17.47% is 90% higher than the industry average of 9.20%. Its trailing-12-month net income margin of 6.26% is 207.1% higher than the 2.04% industry average. Also, the stock’s trailing-12-month CAPEX/Sales of 10.43% is 336.9% higher than the industry average of 2.39%.
For the fiscal 2023 fourth quarter, ASX’s total net revenues increased 4.2% year-over-year to NT$160.58 billion ($5.14 billion). Its gross profit grew 3.4% from the quarter-ago value to NT$25.76 billion ($823.92 million).
Moreover, net income attributable to shareholders of the parent rose 7% from the prior quarter to NT$9.39 billion ($300.39 million), while the company’s EPS stood at NT$2.13, a 6.5% rise from the previous quarter.
Analysts expect ASX’s revenue to increase 14.7% year-over-year to $21.46 billion for the fiscal year ending December 2024. The company’s EPS for the current year is expected to grow 60.2% from the previous year to $0.73. Also, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
Over the past six months, ASX has gained 15.7% to close the last trading session at $9.29.
ASX’s solid outlook is reflected in its POWR Ratings. The stock 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, each weighted to an optimal degree.
ASX has an A grade for Value and Momentum and a B for Sentiment. It is ranked #14 out of 91 stocks within the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings I’ve highlighted, you can see ASX’s Growth, Stability, and Quality ratings here.
Stock #2: QUALCOMM Incorporated (QCOM)
QCOM pioneers and markets fundamental wireless technologies across three key segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). Additionally, it extends its expertise by offering development services and products to United States government agencies.
QCOM’s trailing-12-month gross profit margin of 55.70% is 15% higher than the industry average of 48.43%. Its trailing-12-month EBITDA margin of 29.20% is 217.5% higher than the 9.20% industry average. Moreover, the stock’s trailing-12-month net income margin of 20.19% is 890.6% higher than the industry average of 2.04%.
For the fiscal 2024 first quarter that ended on December 24, 2023, QCOM’s total revenues increased 5% year-over-year to $9.94 billion. Its operating income grew 18.8% from the year-ago value to $2.93 billion. Furthermore, the company’s net income and EPS rose 23.8% and 24.2% from the prior year’s period to $2.77 billion and $2.46, respectively.
The consensus revenue estimate of $38.02 billion for the fiscal year ending September 2024 exhibits a 6.1% year-over-year rise. Likewise, the consensus EPS estimate of $9.29 for the current period reflects a 10.2% growth from the prior year. Moreover, the company surpassed the consensus revenue and EPS estimates in three of four trailing quarters.
The stock has gained 12.4% over the past six months, closing the last trading session at $148.51.
QCOM’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
QCOM has a B grade for Sentiment and Quality. It is ranked #9 out of 91 stocks within the Semiconductor & Wireless Chip industry.
Click here to access additional QCOM ratings for Growth, Value, Momentum, and Stability.
Stock #1: Photronics, Inc. (PLAB)
PLAB produces and sells photomask products and services crucial for fabricating integrated circuits and Flat Panel Displays (FPDs). The company's photomasks play a vital role in transferring intricate circuit patterns onto semiconductor wafers and FPD substrates, contributing to advanced manufacturing processes.
The stock’s trailing-12-month EBITDA margin of 37.43% is 307% higher than the industry average of 9.20%. Additionally, PLAB’s trailing-12-month net income margin of 14.07% is 590.2% higher than the 2.04% industry average. Furthermore, its stock’s trailing-12-month levered FCF margin of 13.73% is 54% higher than the industry average of 8.91%.
For the fiscal 2023 fourth quarter that ended October 31, 2023, PLAB’s revenue increased 8.2% year-over-year to $227.47 million. Its non-GAAP operating income significantly rose from the year-ago value to $5.43 million. Also, the company’s non-GAAP net income and non-GAAP EPS grew 19.4% and 17.6% from the prior year’s period to $37.25 million and $0.60, respectively.
The consensus revenue estimate of $935 million for the fiscal year ending October 2024 indicates a 4.8% year-over-year growth. Likewise, the consensus EPS estimate of $2.30 for the same period reflects a 12.8% year-over-year increase. PLAB shares have gained 61.3% over the past year, closing the last trading session at $29.22.
PLAB’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
PLAB has an A grade for Momentum and a B for Value and Quality. It has topped the 91-stock Semiconductor & Wireless Chip industry.
Click here to access the additional PLAB ratings (Growth, Stability, and Sentiment).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
QCOM shares were trading at $142.12 per share on Thursday afternoon, down $6.39 (-4.30%). Year-to-date, QCOM has declined -1.74%, versus a 2.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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