Semiconductors are essential in today's tech world, powering everything from smartphones and computers to smart appliances and electric vehicles. The industry is booming due to high consumer demand and the need for advanced chips in automotive, data centers, servers, and networking.
Amid this backdrop, investors could consider buying fundamentally strong chip stocks NXP Semiconductors N.V. (NXPI), Qorvo, Inc. (QRVO), Photronics, Inc. (PLAB), and Tower Semiconductor Ltd. (TSEM).
The chip industry is poised for significant growth, driven by rising demand in advanced devices, automotive, healthcare, and emerging technologies like AI, Internet of Things (IoT), and 5G. The global semiconductor market is expected to grow at a CAGR of 16.6% this year, reaching $617 billion.
Notably, the global semiconductor market began 2024 strong, with sales reaching $137.7 billion in the first quarter, up 15.2% from last year. This growth is driven by increased chip usage in healthcare and manufacturing, along with rising demand for high-performance chips in consumer electronics, industrial applications, and telecommunications.
Moreover, the industry is using nanotechnology and new materials to enhance chip quality. High-performance GPUs for AI and large language models are in high demand, driving rapid growth in the coming years. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 66.6% 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: NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, the Netherlands, NXPI offers various semiconductor products. The company's product portfolio includes microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, and security controllers, as well as semiconductor-based environmental and inertial sensors.
On March 28, 2024, NXPI unveiled the S32 CoreRide platform, transforming software-defined vehicle development by combining processing, networking, power management, and software. This integration enhances scalability, cost-efficiency, and performance for future cars.
NXPI collaborated with industry leaders to create a user-friendly vehicle integration platform and introduced the S32N processor family, providing adaptable central computing solutions that benefit car manufacturers.
In terms of the trailing-12-month net income margin, NXPI's 21.24% is 664.3% higher than the 2.78% industry average. Likewise, its 36.15% trailing-12-month EBITDA margin is 270% higher than the 9.77% industry average. Additionally, its 28.36% trailing-12-month EBIT margin is 486.9% higher than the 4.83% industry average.
NXPI’s revenue for the first quarter that ended March 31, 2024, increased marginally year-over-year to $3.13 billion. The company’s non-GAAP gross profit rose marginally from the year-ago value to $1.82 billion.
Also, NXPI’s non-GAAP net income attributable to stockholders came in at $840 million and $3.24 per common share, up 0.7% and 1.6% over the prior-year quarter, respectively.
For the quarter ending December 31, 2024, NXPI’s EPS and revenue are expected to increase 5.7% and 2.4% year-over-year to $3.92 and $3.50 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 48.7% to close the last trading session at $269.94.
NXPI'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 a B grade for Sentiment, and Quality. It is ranked #11 out of 93 stocks in the Semiconductor & Wireless Chip industry. Beyond what we stated above, we also have given NXPI grades for Growth, Value, Momentum, and Stability. Get all the NXPI's ratings here.
Stock #3: Qorvo, Inc. (QRVO)
QRVO engages in the development and commercialization of technologies and products for wireless, wired, and power markets worldwide. It operates through three segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG), and Advanced Cellular Group (ACG).
In terms of the trailing-12-month EBIT margin, QRVO’s 11% is 127.8% higher than the 4.83% industry average. Likewise, its 4.45% trailing-12-month Return on Total Capital is 70.9% higher than the 2.60% industry average. Moreover, its 3.38% trailing-12-month Capex / Sales is 48.8% higher than the 2.27% industry average.
For the fiscal fourth quarter that ended March 30, 2024, QRVO’s revenue rose 48.7% year-over-year to $941 million. The company’s non-GAAP operating income increased 335.1% over the prior-year quarter to $147.22 million. Likewise, its non-GAAP net income and non-GAAP EPS amounted to $135.53 million and $1.39 per share, up 426.6% and 434.6% year-over-year, respectively.
Street expects QRVO’s EPS and revenue for the quarter ending June 30, 2024, to increase 109.7% and 30.8% year-over-year to $0.71 and $852 million, respectively. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters, respectively. Over the past month, the stock has gained 2% to close the last trading session at $97.89.
It’s no surprise that QRVO has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #10 in the same industry. It has an A grade for Growth and a B for Quality. Click here to see QRVO’s rating for Value, Momentum, Stability, and Sentiment.
Stock #2: 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 14.68% is 46.8% higher than the 10% industry average. Likewise, the stock’s 36.93% trailing-12-month EBITDA margin is 278% higher than the 9.77% industry average. Also, the stock’s 15.14% trailing-12-month net income margin is 444.8% higher than the 2.78% industry average.
For the fiscal second quarter that ended April 28, 2024, PLAB reported a revenue of $217 million. Its operating income stood at $56.05 million. Also, the company’s non-GAAP net income and non-GAAP EPS came in at $28.72 million and $0.46, respectively.
In addition, as of April 28, 2024, PLAB’s cash, cash equivalents end of period was $539.16 million compared to $499.29 million as of October 31, 2023.
Analysts expect PLAB’s EPS for the quarter ending July 31, 2024, to increase 9.8% year-over-year to $0.56, and its revenue for the same quarter is expected to increase marginally year-over-year to $225 million. Over the past six months, the stock has gained 27% to close the last trading session at $26.91.
PLAB’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. It is ranked #7 in the Semiconductor & Wireless Chip industry. To see PLAB’s grades for Growth, Stability, and Sentiment, 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.
In terms of the trailing-12-month EBIT margin, TSEM’s 12.73% is 163.5% higher than the 4.83% industry average. Likewise, its 22.16% trailing-12-month Return on Common Equity is 447.4% higher than the industry average of 4.05%. Its 31.36% trailing-12-month Capex/Sales is considerably higher than the industry average of 2.27%.
TSEM’s revenues for the first quarter that ended March 31, 2024, came in at $327.24 million, while its gross profit came in at $72.61 million. Moreover, its adjusted net profit attributable to the company and adjusted EPS amounted to $51.84 million and $0.46, respectively.
Also, as of March 31, 2024, its total current assets stood at $1.74 billion compared to $1.71 billion as of December 31, 2023.
For the quarter ending September 30, 2024, TSEM’s revenue is expected to increase 3.1% year-over-year to $369.15 million. Its EPS for fiscal 2025 is expected to increase 15.4% year-over-year to $2.21. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 36.1% to close the last trading session at $37.61.
TSEM’s POWR Ratings reflect its bright prospects. It has an overall rating of B, which translates to a 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 TSEM for Growth and Stability, click here.
What To Do Next?
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NXPI shares were trading at $268.30 per share on Tuesday afternoon, down $1.64 (-0.61%). Year-to-date, NXPI has gained 17.32%, versus a 11.42% 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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