Thanks to massive private- and public-sector investors worldwide, the global semiconductor chip shortage has been improving of late. According to The Semiconductor Industry Association (SIA), global semiconductor industry sales reached $555.9 billion in 2021, the highest-ever annual total.

In addition, the U.S. House of Representatives’ recent passage of the $52 billion CHIPS Act investments (which is now awaiting passage in the U.S. Senate) could be a massive impetus for U.S. semiconductor manufacturing. According to IC Insights, total semiconductor sales are forecasted to rise at a CAGR of 7.1% over the next five years.

Given this backdrop, we think it could be wise to bet on quality small-cap semiconductor stocks Alpha and Omega Semiconductor Limited (AOSL - Get Rating) and Rockley Photonics Holdings Limited (RKLY - Get Rating). Their shares have gained more than 15% in price over the past month, outperforming the benchmark index’s negative returns.

Click here to checkout our Semiconductor Industry Report for 2022

Alpha and Omega Semiconductor Limited (AOSL - Get Rating)

AOSL designs, develops, and supplies power semiconductor products for computing, consumer electronics, communication, and industrial applications in Hong Kong, China, South Korea, the United States, and internationally. Its market capitalization is $1.39 billion.

On Feb. 7, 2022, AOSL Chairman and CEO Dr. Mike Chang said, “As we look to the future, we now have our sights set on actively planning and marching towards $1 billion annual revenues with much stronger and more sophisticated R&D capabilities and supply chain operations, and with most of our customers being the world’s leading OEMs in the markets that we serve.”

AOSL’s revenue came in at $193.3 million for its fiscal year 2022 second quarter, ended Dec. 31, 2021, up 21.7% year-over-year. Furthermore, its non-GAAP net income came in at $34 million, up 91% year-over-year, while its non-GAAP EPS came in at $1.20, up 84.6% year-over-year.

Analysts expect AOSL’s revenue to increase 17.5% year-over-year to $771.63 million in its fiscal year 2022. Its EPS is expected to increase 57.3% year-over-year to $4.61 in its fiscal 2022. The stock surpassed EPS estimates in each of four trailing quarters. Over the past month, it has gained 17.3% in price to close yesterday’s trading session at $52.12.

AOSL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Value and a B grade for Growth. It is ranked #46 of 97 stocks in the A-rated Semiconductor & Wireless Chip industry. Click here to see the additional ratings for AOSL (Momentum, Stability, Sentiment, and Quality).

Rockley Photonics Holdings Limited (RKLY - Get Rating)

Headquartered in the U.K  RKLY develops and supplies silicon photonics in the United Kingdom and internationally. Its market capitalization is $544.80 million.

On Nov. 15, 2021, Mahesh Karanth, chief financial officer, RKLY, said, “We strengthened our balance sheet with the completion of our business combination and our financing arrangement with Lincoln Park Capital. We continue to make good progress on our commercialization efforts and are scaling our organization to address the large market opportunity ahead of us.”

RKLY’s cash and cash equivalents came in at $75.19 million for the period ended Sept. 30, 2021, versus $19.23 million for the period ended Dec. 31, 2020. The company’s total assets were $181.63 million, compared to $60.43 million for the same period in the prior year. And its total liabilities came in at $68.13 million, versus  $91.74 million for the year-ago period.

For its fiscal year 2022, analysts expect RKLY’s revenue to be $24.87 million, representing a 234.3% year-over-year rise. The company’s EPS is expected to increase 185.1% per annum for the next five years. Over the past month, the stock has gained 16.1% in price to close yesterday’s trading session at $4.04.

Within the Semiconductor & Wireless Chip industry, RKLY is ranked #93. Click here to see the POWR Ratings for RKLY.

Click here to checkout our Semiconductor Industry Report for 2022

AOSL shares were trading at $47.59 per share on Friday afternoon, down $4.53 (-8.69%). Year-to-date, AOSL has declined -21.42%, versus a -9.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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