In today's technology-driven world, semiconductors play a vital role, with their applications expanding across various sectors. The chip industry is set to experience substantial growth due to increased chip usage in advanced devices, automotive and healthcare sectors, and for powering emerging technologies like artificial intelligence (AI), the Internet of Things (IoT), and 5G.
Amid this backdrop, investors could consider adding fundamentally strong chip stocks Photronics, Inc. (PLAB), STMicroelectronics N.V. (STM), Cirrus Logic, Inc. (CRUS), and Everspin Technologies, Inc. (MRAM) to their watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the semiconductor industry is well-positioned for growth.
The semiconductor industry thrives on growing consumer demand for smartphones, tablets, and laptops, which require advanced chips. Driven by global data surges, data centers rely on advanced chips for servers and networking. Additionally, advancements in electric vehicles (EVs) and autonomous driving are boosting chip demand.
According to Gartner, global semiconductor revenue is projected to grow by 16.8% in 2024, reaching $624 billion, with the worldwide memory market expected to experience double-digit growth.
The global semiconductor market started the year on a strong note, with worldwide sales rising 15.2% year-over-year to a total of $47.60 billion in January. The Semiconductor Industry Association (SIA) forecasts global chip sales to grow by 13.1% in 2024 to $595.30 billion due to the rising demand for artificial intelligence (AI) and automotive chips.
The increasing demand for AI-powered devices and applications across various industries is driving the growth of the artificial intelligence chip industry. The global artificial intelligence chip market is predicted to reach $372.01 billion by 2032, exhibiting a growth of 38.2% CAGR.
Moreover, the industry is adopting nanotechnology and new materials to improve chip quality. There is also a significant demand for high-performance GPUs for generative AI applications and to train large language models, paving the way for the industry's rapid expansion in the coming years.
Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 85.9% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the four Semiconductor & Wireless Chip picks, beginning with the fourth choice.
Stock #4: Photronics, Inc. (PLAB)
PLAB and its subsidiaries manufacture and sell photomask products and services internationally. They offer photomasks used in the manufacture of integrated circuits and flat panel displays (FPDs) and in transferring circuit patterns onto semiconductor wafers and FPD substrates.
In terms of the trailing-12-month levered FCF margin, PLAB’s 13.24% is 48.7% higher than the 8.90% industry average. Likewise, the stock’s 28.37% trailing-12-month EBIT margin is 497.6% higher than the 4.75% industry average. Also, the stock’s 15.34% trailing-12-month net income margin is 491.3% higher than the 2.59% industry average.
For the fiscal first quarter that ended January 28, 2024, PLAB’s revenue increased 2.5% year-over-year to $216.33 million. Its operating income rose 2.7% from the year-ago value to $57.49 million. Also, the company’s non-GAAP net income and non-GAAP EPS rose 22.7% and 20% over the prior-year quarter to $29.91 million and $0.48, respectively.
Analysts expect PLAB’s EPS for the quarter ending April 30, 2024, to increase 1.9% year-over-year to $0.55, and its revenue for the same quarter is expected to increase marginally year-over-year to $231 million. Over the past year, the stock has gained 74% to close the last trading session at $28.97.
PLAB’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Value and Quality. It is ranked #14 out of 90 stocks in the Semiconductor & Wireless Chip industry. In total, we rate PLAB on eight different levels. Beyond what we stated above, we also have given PLAB grades for Growth, Stability, and Sentiment. Get all the PLAB’s ratings here.
Stock #3: STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM and its subsidiaries design, develop, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, and Sensors Group, and Microcontrollers and Digital ICs Group segments.
On March 11, 2024, STM launched automotive-grade MDmesh DM9 MOSFETs, enhancing efficiency and ruggedness for onboard chargers and DC/DC converters. The series boasts superior RDS (on), minimal gate charge, and improved body-diode reverse recovery. The first device, STH60N099DM9-2AG, is available at the ST eStore, starting from $4.98.
On March 7, 2024, STM introduced second-gen STM32 microprocessors with 64-bit processing and edge AI acceleration for improved speed, security, and reliability. These STM32MP2 MPUs cater to various sectors like smart factories and healthcare, ensuring up to 10 years of continuous operation with robust cybersecurity. They are set for volume production by June 2024.
In terms of the trailing-12-month EBITDA margin, STM’s 35.77% is 283.6% higher than the 9.33% industry average. Likewise, its 24.36% trailing-12-month net income margin is 838.8% higher than the 2.59% industry average. Furthermore, the stock’s 25.68% trailing-12-month Capex/Sales is considerably higher than the 2.30% industry average.
STM’s net revenue for the fiscal year ended December 31, 2023, increased 7.2% year-over-year to $17.29 billion. Its gross profit rose 8.5% from the year-ago value to $8.29 billion. Its operating income stood at $4.61 billion, up 3.9% year-over-year. In addition, the company’s net income and EPS came in at $4.21 billion and $4.46, up 6.3% and 6.4% over the previous year’s quarter, respectively.
For the fiscal 2025, STM’s EPS and revenue are expected to increase 27.6% and 9.2% year-over-year to $3.85 and $17.63 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 6.9% to close the last trading session at $47.50.
STM’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Momentum, Sentiment, and Quality. It is ranked #6 in the same industry. To see STM’s Growth and Stability ratings, click here.
Stock #2: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that develops low-power, high-precision mixed-signal processing solutions both domestically and internationally. The company provides audio solutions, including integrated audio components, smart codecs, amplifiers, DSPs, and SoundClear technology for enhanced user experiences.
On February 5, 2024, CRUS, along with Intel and Microsoft, unveiled a new PC reference design, integrating CRUS’s audio and power technologies with Intel's Lunar Lake processor for reduced heat, immersive audio, and enhanced battery life, promoting sleek, quiet, and power-efficient designs.
Carl Alberty, VP of Mixed-Signal Products Group at CRUS, said, “Until now, our collaborations with Intel and Microsoft have only included our audio components, but now our power conversion products are expanding the offering. We are excited to help our customers build laptops that elevate the laptop experience for consumers with fantastic sound and sleek, quiet, and power-efficient designs.”
In terms of the trailing-12-month Return on Common Equity, CRUS’ 10.01% is 232.9% higher than the 3.01% industry average. Likewise, its 10.65% trailing-12-month Return on Total Capital is 341.2% higher than the 2.41% industry average. Moreover, its 0.82x trailing-12-month asset turnover ratio is 33.2% higher than the 0.61x industry average.
For the fiscal third quarter that ended December 30, 2023, CRUS' net sales rose 4.8% year-over-year to $618.98 million. The company’s non-GAAP operating profit increased 10.6% over the prior-year quarter to $192.23 million. Likewise, its non-GAAP net income and non-GAAP EPS amounted to $160.63 million and $2.89 per share, up 18.3% and 20.4% year-over-year, respectively.
Street expects CRUS’ EPS and revenue for fiscal 2025 to increase 3.6% and 3.6% year-over-year to $6.22 and $1.80 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 26.1% to close the last trading session at $92.75.
It’s no surprise that CRUS has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #4 in the Semiconductor & Wireless Chip industry. It has a B grade for Growth, Value, Momentum, Sentiment, and Quality. Click here to see CRUS’s rating for Stability.
Stock #1: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells magnetoresistive random access memory (MRAM) products internationally. It offers Toggle MRAM, spin-transfer torque MRAM, and tunnel magneto-resistance sensor products, as well as foundry services for MRAM products.
On March 11, 2024, MRAM applied for U.S. CHIPS and Science Act funding, seeking to expand MRAM's capacity and R&D capabilities. The application aims to enhance 200mm Toggle and STT-MRAM capacity, fostering growth and strengthening MRAM’s technology leadership.
In terms of the trailing-12-month gross profit margin, MRAM’s 58.41% is 19.5% higher than the 48.89% industry average. Likewise, its 14.20% trailing-12-month net income margin is 447.1% higher than the 2.59% industry average. Moreover, its 13.45% trailing-12-month Return on Total Assets is 870.7% higher than the 1.39% industry average.
MRAM’s total revenues for the fiscal year ended December 31, 2023, increased 6.3% year-over-year to $63.77 million, and its gross profit rose 9.7% year-over-year to $37.25 billion. The company’s adjusted EBITDA stood at $15.31 million, up 29.7% from the previous year’s period.
For the same quarter, its net income and comprehensive income rose 47.7% from the year-ago value to $9.05 million. In addition, its net income per share increased 44.8% over the prior-year quarter to $0.42.
For the fiscal 2025, MRAM’s revenue is expected to increase 16.6% year-over-year to $70 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 33.4% to close the last trading session at $8.27.
MRAM’s POWR Ratings reflect its bright prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value, Momentum, and Quality. It is ranked #2 in the same industry. To access the additional ratings of MRAM for Growth and Stability, click here.
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STM shares were trading at $48.14 per share on Tuesday morning, up $0.64 (+1.35%). Year-to-date, STM has declined -3.97%, versus a 8.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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