Over the past year, the chip industry has faced challenges due to supply chain disruptions, high inflation, and demand softness from end markets. However, the long-term prospects of the chip industry look bright thanks to their widespread application across various products and industries.
The global semiconductor industry is expected to grow to $1 trillion by 2030. Moreover, according to a survey by KPMG, sixty-five percent of the executives surveyed think the semiconductor supply shortage will ease in 2023, while eighty-one percent project their company’s revenue will grow.
Additionally, investors’ interest in the chip industry is evident from the VanEck Semiconductor ETF’s (SMH) 12.1% returns over the past three months.
Amid this backdrop, it could be wise for investors to buy fundamentally strong chip stocks Taiwan Semiconductor Manufacturing Company Limited (TSM) and Xperi Inc. (XPER). These stocks are currently trading under $100.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices worldwide. It provides complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radio frequency, and embedded memory semiconductors.
In December 2022, TSM announced the opening of its second chip plant in Arizona, raising its investment in the state from $12 billion to $40 billion. The second plant will produce 3-nanometer chips, with production starting in 2026.
In terms of forward non-GAAP P/E, TSM’s 16.30x is 23% lower than the 21.17x industry average. Its forward EV/EBITDA of 8.22x is 38.5% lower than the 13.36x industry average. Also, the stock’s 12.92x trailing-12-month EV/EBIT is 25.7% lower than the 17.39x industry average.
TSM’s net revenue for the fiscal fourth quarter ended December 31, 2022, increased 42.8% year-over-year to NT$625.53 billion ($20.61 billion). Its gross profit increased 68.7% year-over-year to NT$389.19 billion ($12.82 billion).
Net income attributable to shareholders of TSM increased 78% year-over-year to NT$295.90 billion ($9.75 billion). In addition, its EPS came in at NT$11.41, representing an increase of 78% from the prior-year quarter.
Analysts expect TSM’s EPS for fiscal 2024 to increase 23.6% year-over-year to $7.04. Its revenue for the quarter ending March 31, 2023, is expected to increase 2.7% year-over-year to $17.36 billion.
It has a commendable earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 15.3% to close the last trading session at $92.76.
TSM’s strong fundamentals are reflected in its POWR Ratings. It 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.
Within the Semiconductor & Wireless Chip industry, it is ranked #19 out of 92 stocks. The stock has an A grade for Quality and a B for Momentum and Sentiment.
To see the other ratings of TSM for Growth, Value, and Stability, click here.
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers Pay-TV solutions, IPTV solutions, managed IPTV service, video metadata and service, app content linking services, advanced metadata, personalized content discovery, natural language voice and insights, and TiVo DVR subscriptions.
In terms of forward EV/Sales, XPER’s 0.71x is 76.9% lower than the 3.09x industry average. Its forward Price/Sales of 0.88x is 70.2% lower than the 2.97x industry average.
On September 12, 2022, DTS, Inc., a wholly owned subsidiary of XPER, joined Sense Media Group to launch “InCabin,” a series of global events dedicated to the in-cabin space. Adi Capata, DTS’s SVP of Engineering, believes that sensing technology is critical to the in-cabin future, with significant implications for consumers, OEMs, and technology providers.
XPER’s revenue for the third quarter ended September 30, 2022, increased 3.3% year-over-year to $121.64 million. The company’s total current assets increased 21.3% to $336.30 million compared to $277.14 million for the fiscal year ended December 31, 2021.
XPER’s revenue for the fiscal year 2023 is expected to increase 6.2% year-over-year to $528.28 million. The stock has gained 21.6% year-to-date to close the last trading session at $10.47.
XPER’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #3 out of 92 stocks in the B-rated Software - Application industry. In addition, it has a B grade for Growth, Sentiment, and Quality.
Click here to see the other ratings of XPER for Value, Momentum, and Stability.
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TSM shares were trading at $91.37 per share on Thursday afternoon, down $1.39 (-1.50%). Year-to-date, TSM has gained 22.66%, versus a 7.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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