As one of the popular players in the semiconductor space, the shares of Santa Clara, Calif.-based Advanced Micro Devices, Inc (AMD) have gained 36.9% in price over the past three months to close yesterday’s trading session at $107.27, after hitting their $122.49, 52-week high. The company recently launched its AMD Radeon RX 6600 XT graphics card, which is designed to deliver the ultimate high-framerate, high-fidelity, and highly responsive 1080p gaming experience.

However, AMD’s  trailing-12-month gross profit margin and CAPEX/Sales are 45.71% and 2.08%, respectively,  compared unfavorably with the 49.04% and 2.28% industry averages. Moreover, the stock is currently trading at an expensive valuation. In terms of forward Price-to-Book ratio, AMD’s 15.39x is 156.3% higher than the 6x industry average. In addition, the stock’s 8.33x forward P/S is 103.2% higher than the 4.10x industry average. So, it’s wise to wait for a better entry point in the stock.

Nevertheless, the industry looks attractive right currently. Because the governments of several countries are investing heavily to address the semiconductor chip shortage, prominent players in this space should benefit from the rising demand for semiconductors from several industries. According to a SpendEdge report, the global semiconductor market will grow at a 6.8% CAGR  from 2021 – 2025.

So, we think it is better to stay away from AMD right now and bet on semiconductor stocks Applied Materials, Inc. (AMAT), Lam Research Corporation (LRCX), and Analog Devices, Inc. (ADI) instead. They are expected to continue  thriving in the coming quarters.

Click here to checkout our Semiconductor Industry Report for 2021

Applied Materials, Inc. (AMAT)

AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets. AMAT is headquartered in Santa Clara, Calif.

On August 20, 2021, Gary Dickerson, the company’s President, and CEO said, “Applied has the broadest and most enabling portfolio of technologies to accelerate our customers’ roadmaps, putting us in a great position to outperform our markets again in 2021 and the years ahead.”

The company’s net sales increased 41% year-over-year to $6.20 billion for its  fiscal third quarter, ended August 1, 2021. Its adjusted operating income grew 74.9% year-over-year to $2.03 billion, while its adjusted net income increased 78% year-over-year to $1.74 billion. Also, its adjusted EPS came in at $1.90, up 79% year-over-year.

AMAT’s EPS and revenue are expected to increase 57.8% and 32.3%, respectively, year-over-year to $6.58 and $22.76 billion in its fiscal year 2021. In addition, it surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 107.8% in price over the past year to close yesterday’s trading session at $132.49.

AMAT’s POWR Ratings reflect solid prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a B grade for Momentum and Quality.

Click here to see AMAT’s ratings for Growth, Stability, Value, and Sentiment as well. AMAT is ranked #46 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.

Lam Research Corporation (LRCX)

LRCX designs, manufactures, markets, refurbishes, and services semiconductor processing equipment to fabricate integrated circuits. The Freemont, Calif., company offers ALTUS systems, SABRE electrochemical deposition products, SOLA ultraviolet thermal processing products, and VECTOR plasma-enhanced CVD ALD products.

LRCX announced the expansion of its global manufacturing capacity on August 4, opening the company’s largest facility in Batu Kawan, Malaysia. Tim Archer, the company’s president, and CEO said, “The opening of our new facility in Penang is a critical step we’re taking to meet growing demand for our cutting-edge technology, expand our global footprint to better serve our customers and position our company for continued growth.”

The company’s revenue increased 7.7% sequentially to $4.14 billion for the quarter ended June 27, 2021. Its non-GAAP operating income grew 11.2% sequentially to $1.35 billion, while its non-GAAP net income increased 7.2% sequentially to $1.16 billion. Also, its non-GAAP EPS came in at $8.09, up 8% sequentially.

For the quarter ending September 30, 2021, analysts expect LRCX’s EPS and revenue to increase 44.8% and 39.1%, respectively, year-over-year to $8.21 and $4.32 billion. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 66.4% over the past year to close yesterday’s trading session at $585.35.

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

The stock has a B grade for Momentum and Quality. Within the Semiconductor & Wireless Chip industry, LRCX is ranked #37. Click here to see the additional POWR Ratings for LRCX (Growth, Value, Sentiment, and Stability).

Analog Devices, Inc. (ADI)

ADI in Norwood, Mass., designs, manufactures, tests, and markets integrated circuits, software, and subsystems that leverage analog, mixed-signal, and digital signal processing technologies. The company offers data converter products, high-performance amplifiers, and radiofrequency and microwave ICs.

ADI announced the completion of its acquisition of Maxim Integrated Products, Inc. (MXIM) on August 26, 2021. The acquisition further strengthens ADI’s position as a high-performance analog semiconductor company.

The company’s revenue increased 21% year-over-year to $1.76 billion for its  fiscal third quarter, ended July 31, 2021. Its adjusted operating income grew 24% year-over-year to $766 million. And its adjusted EPS came in at $1.72, up 26% year-over-year.

Analysts expect ADI’s EPS and revenue to increase 28.1% and 19.7%, respectively, year-over-year to $6.29 and $6.71 billion in its fiscal year 2021. In addition, it surpassed  consensus EPS estimates in each of the trailing four quarters. The stock has gained 38.9% in price over the past year to close yesterday’s trading session at $167.36.

ADI’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Momentum and Quality.

Click here to access ADI’s ratings for Growth, Stability, Sentiment, and Value as well. In addition, ADI is ranked #51 in the same industry.

Click here to checkout our Semiconductor Industry Report for 2021

AMAT shares were trading at $136.60 per share on Friday afternoon, up $4.11 (+3.10%). Year-to-date, AMAT has gained 59.15%, versus a 21.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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