As consumer electronics consumption increases exponentially, the demand for semiconductors is boosting. The rising application of chips across many industries has further widened its scope and possibilities. Also, the growing integration across applications and technological advancements is booming the semiconductor industry.
Given this backdrop, it could be wise to buy high-growth semiconductor stocks Silicon Motion Technology Corporation (SIMO), SMART Global Holdings, Inc. (SGH), and Qorvo, Inc. (QRVO) for favorable returns.
The semiconductor industry is expanding rapidly with the increasing chip demand across various industries like consumer electronics, transportation, medical applications, and industrial automation. Also, the swift technological transformation has led to increased AI chips, high-bandwidth memory, and high-performance chip requirements.
The SIA reported global semiconductor industry sales of $149.90 billion for the second quarter of 2024, indicating an increase of 18.3% from the second quarter of 2023 and 6.5% up from the first quarter of 2024. Sales for the month of June 2024 were $50 billion, up 1.7% compared to May 2024. These statistics project an uptrend in chip sales.
Further, the establishment of the CHIPS and Science Act has strengthened the U.S. semiconductor market, with its objectives to increase chip manufacturing, boost domestic production, and reduce supply chain vulnerabilities by investing in American chip-making capabilities.
The worldwide revenue in the semiconductors market is expected to reach $607.40 billion in 2024. Further, driven by growing product use in consumer electronics and Integrated Circuits Integration, the global semiconductor market is anticipated to grow at a notable CAGR of 14.9%, expanding to $2.06 trillion by 2032.
In global comparison, the U.S. semiconductor market is expected to reach a value of $258.30 billion in 2032. In the forecast period, the global market will benefit from the development of artificial intelligence (AI), the Internet of Things (IoT), and machine learning (ML) technologies.
Considering these encouraging industry trends, let’s delve deeper into the fundamentals of top Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Silicon Motion Technology Corporation (SIMO)
Headquartered in Hong Kong, SIMO designs, develops, and markets NAND flash controllers for solid-state storage devices internationally. It provides controllers for computing-grade solid state drives (SSDs), for PCs and other client devices, and enterprise-grade SSDs used in data centers.
SIMO’s revenue and EBITDA have grown at respective CAGRs of 11.2% and 3.6% over the past five years. The company’s EBIT has increased by 2.7% over the same timeframe, while its tangible book value and total assets have improved at CAGRs of 7.9% and 8.2%, respectively.
On August 7, SIMO launched SM2508, the best power-efficiency PCIe Gen5 NVMe 2.0 client SSD controller for AI PCs and gaming consoles. The Gen5 SSD controller is designed to cater to the demands of today's AI-capable PCs, delivering high performance and power efficiency to meet the evolving AI PC standards.
On June 3, SIMO launched the SM770 USB display interface SoC for USB docking stations to simplify connectivity for multiple 4K Ultra-High Definition Displays with low latency and low power consumption. The SM770 supports up to three 4K 60Hz UHD displays and up to 144Hz display, allowing flexible connections with PC notebooks.
During the second quarter that ended June 30, 2024, SIMO’s net sales rose 50.1% year-over-year to $210.67 million. Its non-GAAP gross profit grew 62.2% from the year-ago value to $96.84 million. The company’s non-GAAP operating profit of $34.71 million reflects growth of 197.1% year-over-year.
In addition, the company’s non-GAAP net income and earnings per ADS totaled $32.46 million and $0.96, up 157.9% and 152.6% from the prior year’s quarter, respectively.
Street expects SIMO’s revenue for the third quarter (ended September 2024) to increase 21.4% year-over-year to $209.16 million. Its EPS for the same quarter is expected to grow 35% year-over-year to $0.85. Also, the company has topped the consensus EPS and revenue estimates in each of the four trailing quarters, which is impressive.
Shares of SIMO have surged 16.7% over the past year to close the last trading session at $60.08.
SIMO’s solid 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 POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SIMO has an A grade for Value. It also has a B grade for Growth. It is ranked #9 out of 91 stocks in the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings we’ve stated above, we also have SIMO’s ratings for Momentum, Sentiment, Stability, and Quality. Get all SIMO ratings here.
Stock #2: SMART Global Holdings, Inc. (SGH)
SGH engages in the designing and development of enterprise solutions internationally. The company operates through Memory Solutions; Intelligent Platform Solutions; and LED Solutions segments.
SGH’s EBITDA has increased at a CAGR of 0.6% over the past three years. The company’s tangible book value has increased 13.5% over the same timeframe, while its total assets and levered free cash flow have improved at CAGRs of 9.2% and 67.7%, respectively.
On September 17, SGH’s company SMART Modular Technologies, Inc. introduced a proprietary technology to mitigate the adverse impact of single event upsets in high-reliability flash-memory-based systems. Its MP3000 NVMe SSD products with SEU mitigation reduce annual failure rates from 17.5k/Mu (million units) to below 10/Mu.
The new technology saves a wholesome amount of money in potential service costs by helping to ensure hundreds of hours of uninterrupted uptime, which is especially important for tough-to-repair remote deployments.
On September 10, SGH’s company Stratus Technologies Inc. expanded its Linux capabilities for its 12th generation of the ftServer platform. The Stratus ftServer® family of computing platforms addresses a critical market need for optionality and openness in virtualization while continuing to provide industry-leading fault-tolerant computing capabilities.
For the third quarter that ended May 31, 2024, SGH reported total net sales of $300.58 million, up 5.5% from the prior quarter. Its non-GAAP gross profit grew 8.1% from the quarter-ago value to $96.96 million. The company’s non-GAAP operating income of $33.32 million indicates growth of 25.7% from the prior quarter.
In addition, non-GAAP net income attributable to SGH and EPS came in at $20.22 million and $0.37, up 43% and 37% from the prior quarter, respectively.
Street expects SGH’s revenue and EPS for the first quarter (ending November 2024) to increase 22.2% and 72.7% year-over-year to $335 million and $0.41, respectively. Furthermore, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
SGH’s stock has gained 3.5% over the past month to close the last trading session at $20.54.
SGH’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Quality. SGH is ranked #5 among 91 stocks in the Semiconductor & Wireless Chip industry.
Click here to access SGH’s ratings for Stability, Sentiment, and Momentum.
Stock #1: Qorvo, Inc. (QRVO)
QRVO engages in developing and commercializing technologies and products for wireless, wired, and power markets globally. The company operates through three segments: High Performance Analog (HPA); Connectivity and Sensors Group (CSG); and Advanced Cellular Group (ACG).
QRVO’s revenue and EBIT have grown at respective CAGRs of 4.8% and 2% over the past five years. The company’s normalized net income has increased by 2.8% over the same timeframe, while its total assets and levered free cash flow have improved at CAGRs of 1.7% and 0.3%, respectively.
On January 31, QRVO entered a definitive agreement to acquire Anokiwave, a supplier of high-performance silicon integrated circuits for intelligent active array antennas. Anokiwave’s high-frequency beamforming and IF-to-RF conversion ICs complement QRVO’s existing RF front-end portfolio.
The strategic acquisition bodes well with QRVO’s operations. Anokiwave’s solutions expanded QRVO's addressable opportunities in D&A, SATCOM, and 5G Markets.
QRVO’s total revenue increased 36.2% year-over-year to $886.67 million during the first quarter that ended June 29, 2024. Its non-GAAP gross profit rose 29.8% year-over-year to $362.66 million. The company’s non-GAAP operating income of $98.12 million indicates growth of 110% from the prior year’s quarter.
Furthermore, the company’s non-GAAP net income increased 148.7% and 155.9% from the year-ago value to $83.52 million and $0.87 per share, respectively.
According to QRVO’s current outlook for the September 2024 quarter, its quarterly revenue is expected to be $1.02 billion, plus or minus $25 million. And its non-GAAP earnings per share is expected between $1.75 and $1.95.
Analysts expect QRVO’s revenue for the fourth quarter (ending March 2025) to increase 2.9% year-over-year to $968.46 million, and its EPS is expected to grow 6.8% year-over-year to $1.48. Moreover, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
QRVO’s stock has soared 7.4% over the past year to close the last trading session at $102.15.
QRVO’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Quality, Value, and Sentiment. Within the same industry, QRVO is ranked #3 among 91 stocks.
Click here to access additional ratings of QRVO for Stability and Momentum.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
QRVO shares were trading at $100.42 per share on Thursday afternoon, down $1.73 (-1.69%). Year-to-date, QRVO has declined -10.82%, versus a 20.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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