The robust recovery in chip demand across end-use sectors, including consumer electronics and automotive, rising adoption of advanced technologies such as artificial intelligence (AI), the Internet of Things (IoT), and robotics, and supportive government funding and policies are key factors that will contribute to the semiconductor industry’s growth in 2024.
Considering the industry’s robust outlook, it could be wise to invest in fundamentally sound semiconductor stocks ChipMOS Technologies Inc. (IMOS), STMicroelectronics N.V. (STM), and Applied Materials, Inc. (AMAT) for potential gains.
The ever-growing consumer demand for the latest smartphones, tablets, laptops, and other electronic devices is driving the semiconductor industry’s growth, as these devices require advanced chips to deliver superior performance, better graphics, and improved efficiency.
Further, the global data generation and consumption surge boosts the requirement for robust data centers, and semiconductors are vital components in servers, storage devices, and networking equipment that power these data centers. Another key growth factor is the advancements in EVs and autonomous driving, which necessitate a higher number of chips.
The global semiconductor market is projected to grow at a CAGR of 7.7% during the forecast period (2024-2032), resulting in a value of $1.22 trillion by 2032.
According to SEMI’s latest quarterly World Fab Forecast report, the global semiconductor capacity is anticipated to grow 6.4% in 2024 to top the 30 million wafers per month (wpm) mark for the first time after increasing 5.5% to 29.6 wpm last year.
This year’s growth will be driven by capacity increases in leading-edge logic and foundry, the prevalence of applications such as generative AI and high-performance computing (HPC), and the recovery in end demand for chips.
The CHIPS and Science Act of 2022 directs around $280 billion in spending over the next ten years to bolster U.S. semiconductor capacity, catalyze Research & Development (R&D), and create regional high-tech hubs and a more inclusive STEM workforce. Nearly $52.70 billion in federal subsidies are allocated to support chip manufacturing.
Investors’ interest in semiconductor stocks is evident from the iShares PHLX SOX Semiconductor Sector Index Fund (SOXX) 26.1% returns over the past six months.
Given these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries internationally. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On February 26, 2024, AMAT announced a portfolio of products and solutions designed to address the patterning requirements of chips in the “angstrom era.” AMAT introduced innovative new etch systems, CVD patterning films and metrology solutions to enhance chips made using EUV and High-NA EUV lithography.
AMAT is also working with leading-edge logic chipmakers on a growing number of Sculpta applications.
On January 30, AMAT and MIT announced an agreement, together with a grant to MIT from the Northeast Microelectronics Coalition (NEMC) Hub, allocating more than $40 million of estimated private and public investment to add advanced nano-fabrication equipment and capabilities to MIT.nano.
This strategic collaboration will create a unique open-access site in the U.S., supporting research and development at an industry-compatible scale with the same equipment found in high-volume production fabs to accelerate advances in silicon and compound semiconductors, power electronics, analog devices and other technologies.
For the first quarter that ended January 28, 2024, AMAT reported net sales of $6.71 billion. Its non-GAAP gross profit increased 1.9% year-over-year to $3.21 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $1.78 billion and $2.13, up 3.4% and 4.9% from the prior year’s quarter, respectively.
In addition, the company’s non-GAAP free cash flow increased 5.7% from the year-ago value to $2.10 billion. Its cash and cash equivalents were $6.85 billion as of January 28, 2024, compared to $6.13 billion as of October 29, 2023.
Street expects AMAT’s revenue for the third quarter (ending July 2024) to increase 2.1% year-over-year to $6.56 billion. Also, the consensus EPS estimate of $1.96 for the same period indicates a 2.9% rise year-over-year. Furthermore, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters, which is remarkable.
AMAT’s stock has gained 39.5% over the past six months and 81% over the past year to close the last trading session at $202.86.
AMAT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Quality and Sentiment. Within the Semiconductor & Wireless Chip industry, AMAT is ranked #12 out of 90 stocks.
Click here to access additional ratings of AMAT for Growth, Stability, and Value.
Stock #2: STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM designs, develops, manufactures, and sells semiconductor products globally. It operates through the Automotive and Discrete Group; Analog, MEMS and Sensors Group; and Microcontrollers and Digital ICs Group segments.
On February 22, 2024, STM announced an all-in-one, direct Time-of-Flight (dToF) 3D LiDAR (Light Detection and Ranging) module having market-leading 2.3k resolution and also revealed an early design win for the world’s smallest 500k-pixel indirect Time-of-Flight (iToF) sensor. Such innovations bode well for the company and widen its horizons for future developments.
On February 12, STM and Mobile Physics, a software development startup specializing in environmental physics, joined forces to create EnviroMeter for accurate air-quality monitoring on smartphones and other devices. This solution is designed specifically for ST’s multizone ranging sensors and measures particulates in the surrounding environment.
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 grew 8.5% from the year-ago value to $8.29 billion. The company’s operating income of $4.61 billion indicates growth of 3.9% year-over-year.
Further, the company’s net income and EPS came in at $4.21 billion and $4.46, up 6.3% and 6.4% from the previous year’s quarter, respectively. STM’s total current assets as of December 31, 2023, were $11.81 billion versus $9.80 billion as of December 31, 2022.
Analysts expect STM’s revenue and EPS for the fiscal year (ending December 2025) to increase 9.2% and 27.6% year-over-year to $17.63 billion and $3.85, respectively. Moreover, the company has topped the consensus revenue and EPS estimates in three of the trailing four quarters.
STM’s shares have gained 5.1% over the past month to close the last trading session at $46.31.
STM’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Momentum and Quality. Within the same industry, STM is ranked #7 among 90 stocks.
In addition to the POWR Ratings we’ve stated above, we also have STM ratings for Growth, Sentiment, and Stability. Get all STM ratings here.
Stock #1: ChipMOS TECHNOLOGIES INC. (IMOS)
Based in Hsinchu City, Taiwan, IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits and related assembly and testing services. It operates through Testing; Assembly; Testing and Assembly for LCD, OLED and Other Display Panel Driver Semiconductors; Bumping; and Others segments.
On December 21, 2023, IMOS announced the $137.10 million sale of the equity interests in Unimos Microelectronics (Shanghai) Co., Ltd. by the company’s wholly-owned subsidiary, ChipMOS TECHNOLOGIES (BVI) LTD. ChipMOS BVI divested its 45.0242% equity interests in Unimos Shanghai to Suzhou Oriza PuHua ZhiXin Equity Investment Partnership and ten others.
“This transaction is inline with our focus on supporting customers in higher growth end-markets as a leading OSAT provider,” said S.J. Cheng, Chairman of ChipMOS.
In terms of forward EV/Sales, IMOS is trading at 1.50x, 49% lower than the industry average of 2.94x. Likewise, the stock’s forward EV/EBITDA multiple of 4.21 is 72.6% lower than the industry average of 15.38. Further, the stock’s forward Price/Sales of 1.35x is 53.7% lower than the industry average of 2.92x.
During the fourth quarter that ended December 31, 2023, IMOS’ revenue increased 22.2% year-over-year to $187 million. Its net profit attributable to equity holders of IMOS grew 207.8% and 100% from the prior year’s quarter to $15.70 million and $0.02 per common share, respectively.
Also, the company’s net free cash flow for the fiscal year ended December 31, 2023, was $43.70 million, and its cash and cash equivalents were $403.50 million.
Analysts expect IMOS’ revenue for the first quarter (ending March 2024) to increase 8.7% year-over-year to $162.83 million. For the fiscal year 2024, the company’s revenue is expected to grow 10.2% year-over-year to $746.22 million. Moreover, the company has topped consensus revenue estimates in three of the trailing four quarters.
Shares of IMOS have surged 17.6% over the past six months and 18.8% over the past year to close the last trading session at $27.90.
IMOS’ POWR Ratings reflect this robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
IMOS has an A grade for Value and Momentum. The stock has a B grade for Sentiment. It has topped the list of 90 stocks in the Semiconductor & Wireless Chip industry.
Click here to access additional IMOS ratings for Growth, Quality, and Stability.
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AMAT shares fell $4.16 (-2.05%) in premarket trading Wednesday. Year-to-date, AMAT has gained 25.38%, versus a 6.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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