With semiconductors being essential components in an extensive range of electronic devices, their solid demand spans across industries such as automotive, healthcare, and consumer electronics. Moreover, the sector is riding a wave of ongoing technological progress, enabling the creation of more robust and energy-efficient chips.

Given this backdrop, it could be wise to buy fundamentally strong chip stocks Qorvo, Inc. (QRVO), ROHM Co., Ltd. (ROHCY) and Tower Semiconductor Ltd. (TSEM) to boost year-ending profits. Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.

Chips are vital in powering applications across consumer electronics, defense, automotive, telecommunication and healthcare industries. Despite a slowdown during the second half of last year, chip sales reached their highest level by the end of last year, underscoring their critical importance in today’s diverse industries.

Global semiconductor sales in September rose 1.9% sequentially. Worldwide sales of semiconductors totaled $134.70 billion during the third quarter, up 6.3% year-over-year. This growth is driven by widespread applications across various sectors and increasing demand for customized chips due to AI and IoT adoption.

Revenues from customized chips to handle AI workloads are expected to grow 20.9% year-over-year to $53.40 billion in 2023. Gartner forecasts revenues from AI semiconductors to increase 25.6% year-over-year to $67.10 billion in 2024. This growth can be attributed to the demand for high-performance GPUs and optimized semiconductor devices for generative AI platforms.

According to a report by Custom Market Insights, the global semiconductor chip market is expected to grow at a CAGR of 7.1% to reach $1.12 trillion by 2032.

Considering these conducive trends, let’s analyze the fundamental aspects of the three Semiconductor & Wireless Chip stock picks, beginning with the third choice.

Stock #3:  Qorvo, Inc. (QRVO)

QRVO develops and commercializes technologies and products for wireless, wired, and power markets. It operates through three segments: High-Performance Analog (HPA); Connectivity and Sensors Group (CSG); and Advanced Cellular Group (ACG).

On October 25, QRVO released QSPICE, a new generation of circuit simulation software that provides power and analog designers with significantly higher levels of design productivity through improved simulation speed, functionality, and reliability, making it easy to solve the complex hardware and software challenges system designers face. This should be a significant addition to its portfolio.

In the fiscal second quarter ended September 2023, QRVO’s revenue stood at $1.10 billion, while non-GAAP gross profit came at $525.25 million, increasing 87.9% from the previous quarter, ended July 1, 2023. Its non-GAAP operating income improved 498.3% from the prior quarter to $279.43 million.

Moreover, its non-GAAP net income and net income per share came at $235.51 million and $2.39, respectively, registering a substantial increment from prior quarter figures. Its total current assets came in at $2.26 billion as of September 30, 2023, compared to $2.03 billion as of April 1, 2023.

QRVO’s 4.36% trailing-12-month Capex/Sales is 86.6% higher than the industry average of 2.34%. Its trailing-12-month EBITDA margin of 11.59% is 27.9% higher than the industry average of 9.07%.

The consensus revenue and EPS of $1 billion and $1.66 for the fiscal third quarter ending December 2023 represent 34.9% and 120.9% year-over-year increases, respectively. It surpassed revenue and EPS estimates in each of the trailing four quarters, which is impressive.

QRVO’s shares have gained 5.1% over the past month to close the last trading session at $93.39. It has also gained 3% year-to-date.

It’s no surprise that QRVO has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

It has a B grade for Growth, Momentum, and Sentiment. It is ranked #18 out of 92 stocks in the Semiconductor & Wireless Chip industry.

Beyond what is stated above, we’ve also rated QRVO for Value, Stability, and Quality. Get all QRVO ratings here.

Stock #2: ROHM Co., Ltd. (ROHCY)

ROHCY, headquartered in Kyoto, Japan, is a global electronic components manufacturer. The company operates in three segments: LSI; Semiconductor Devices; and Modules. Its product portfolio comprises ICs, discrete semiconductor products like MOSFETs, bipolar transistors and diodes, power devices such as power transistors and diodes, and modules.

On November 8, 2023, ROHCY introduced the BD2311NVX-LB gate driver IC optimized for GaN devices, enabling nanosecond-level gate drive speeds for high-speed switching. This development supports the growing demand for smaller, more energy-efficient applications, particularly in power supply units for server systems and high-speed pulsed laser applications like LiDAR.

The introduction of the ultra-high-speed gate driver reflects ROHCY's commitment to advancing GaN technology, catering to the demand for faster switching devices.

In the same month, ROHCY introduced the BTD1RVFL series silicon capacitors, leveraging proprietary RASMID™ miniaturization technology for compact, high-performance components in smartphones and wearables. The development showcases ROHCY's commitment to advancing semiconductor processing technology, supporting its goal to expand into various applications, including high-speed communication equipment and industrial devices.

For the six-month period ended September 30, 2023, ROHCY’s net sales came in at ¥239.32 billion ($1.60 billion). Its operating profit came in at ¥29.83 billion ($199.56 million). The company’s profit attributable to owners of parent came in at ¥37.31 billion ($249.55 million).

In terms of the trailing-12-month net income margin, ROHCY’s 13.45% is substantially higher than the 1.77% industry average. Likewise, its 14.72% trailing-12-month EBIT margin is 213.9% higher than the industry average of 4.69%. Furthermore, the stock’s 4.52% trailing-12-month return on total assets is significantly higher than the industry average of 0.07%.

For the fiscal year ending March 2024, revenue is projected to reach $3.38 billion, showing 5% year-over-year growth.

Over the past month, the stock has gained 2.4% to close the last trading session at $18.21.

ROHCY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.

It has a B grade for Value, Momentum and Stability. It is ranked #13 in the same industry. To see ROHCY’s Growth, Sentiment, and Quality ratings, click here.

 Stock #1: Tower Semiconductor Ltd. (TSEM)

Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry that manufactures and markets analog-intensive mixed-signal semiconductor devices in the United States, Japan, other Asian countries, and Europe.

On September 11, 2023, TSEM and Fortsense announced the successful development of an advanced 3D imager, FL6031, for LiDAR applications based on dToF technology. This development addresses the needs of depth sensing applications in automotive, consumer, and industrial markets.

In the same month, 2023, TSEM and InnoLight Technology announced a collaboration to develop high-speed optical transceivers using TSEM’s Silicon Photonics process platform (PH18). Production is already underway, aiming to provide cutting-edge solutions for AI, data centers, and next-gen telecom networks. This development holds immense promise for TSEM as the silicon photonic die market is expected to grow at a CAGR of 22%, reaching half a billion dollars by 2027.

TSEM’s revenues for the third quarter that ended September 30, 2023, came in at $358.17 million, while its gross profit came in at $86.87 million. The company’s operating profit increased 357.2% from the prior-year quarter to $362.16 million.

Moreover, its net profit attributable to the company rose 394.8% year-over-year to $342.06 million. Its EPS came in at $3.07, representing an increase of 395.2% from prior year values.

In terms of the trailing-12-month net income margin, TSEM’s 37.17% is significantly higher than the 1.77% industry average. Likewise, its 34.86% trailing-12-month EBITDA margin is 284.6% higher than the industry average of 9.07%. Furthermore, the stock’s 19.32% trailing-12-month return on total assets is substantially higher than the industry average of 0.07%.

The company surpassed the consensus EPS estimates in each of the trailing four quarters and revenue estimates in three out of the trailing four quarters, which is impressive.

Over the past month, the stock has gained 20.7% to close the last trading session at $28.16.

TSEM’s POWR Ratings reflect solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It is ranked #10 in the same industry. It has an A grade for Momentum and a B for Value, Sentiment, and Quality. Click here to access the additional ratings of TSEM for Growth and Stability.

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QRVO shares were trading at $93.29 per share on Monday morning, down $0.10 (-0.11%). Year-to-date, QRVO has gained 2.92%, versus a 20.24% rise in the benchmark S&P 500 index during the same period.

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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