In an era of unprecedented technological advancements, the backbone of innovation lies within the world of semiconductor chips. As global demand for technology continues to surge, chip stocks have emerged as a compelling avenue for astute investors seeking growth.

Given this backdrop, I have evaluated three fundamentally sound chip stocks, ASE Technology Holding Co., Ltd. (ASX), inTEST Corporation (INTT), and Diodes Incorporated (DIOD), which could be smart watchlist additions this month.

But before we get into the fundamentals of these stocks, let’s understand the prospects of the semiconductor industry.

The global semiconductor market is experiencing significant growth, driven primarily by the widespread use of consumer electronics worldwide. Additionally, emerging technologies such as Artificial Intelligence (AI), the Internet of Things (IoT), and Machine Learning (ML) are creating new opportunities for market expansion.

These innovations are increasing the demand for faster and more advanced memory chips, particularly in industrial applications. Moreover, the evolution of semiconductor technology has allowed electronic devices to become more compact and portable.

Underscoring robust demand, the Semiconductor Industry Association announced that global semiconductor sales for the second quarter totaled $124.5 billion, registering an increase of 4.7% over the first quarter of 2023. 

According to MordorIntelligence, the semiconductor industry is expected to reach a staggering value of $1.09 trillion by 2028, growing at a CAGR of 10.9%. Moreover, The global AI chip market is expected to hit approximately $227.48 billion by 2032, expanding at a CAGR of 29.7% from 2023 to 2032.

Furthermore, investors’ interest in chip stocks is underscored by the VanEck Semiconductor ETF’s (SMH) impressive 53.6% gains year-to-date.

With that in mind, it’s time to examine the fundamentals of the top three stocks to watch in the Semiconductor & Wireless Chip, starting with number 3.

Stock #3: ASE Technology Holding Co., Ltd. (ASX)

ASX is a global company specializing in semiconductor packaging, testing, and electronic manufacturing services. Additionally, it engages in real estate management, substrates production, and various related services. Headquartered in Kaohsiung, Taiwan, ASX operates internationally, serving clients in the United States, Asia, Europe, and beyond.

On June 20, USI, a subsidiary of ASX, held a groundbreaking ceremony for its second factory in Poland, set to enhance manufacturing capabilities with advanced technology. The factory aims to be fully operational by the first quarter of 2024, expanding USI’s production capacity to meet increasing market demands.

On May 31, Advanced Semiconductor Engineering, Inc. (ASE), a member of ASX, announced a significant breakthrough in its Fan-Out-Chip-on-Substrate-Bridge (FOCoS-Bridge) technology by qualifying a large 70mm x 78mm package integrating two ASICs and eight High Bandwidth Memory (HBM) devices through silicon bridges.

This scalable technology addresses the growing demand for high bandwidth and faster data transfer in AI and HPC applications, offering high-density die-to-die connections and enabling innovative chip architectures. Such a breakthrough might be a milestone for ASX by revving up the market sentiments.

For the first quarter ended June 30, 2023, ASX’s total net revenues increased 4.1% from last quarter to NT$136.28 billion ($4.27 billion) while its gross profit increased 12.4% sequentially to NT$21.74 billion ($681.95 million).

ASX’s operating income and net income attributable to shareholders of the parent stood at NT$9.41 billion ($295.23 million) and NT$7.74 billion ($242.78 million), up 22.3% and 33.1%, respectively, from last quarter. Also, its EPS increased 35.4% sequentially to NT$1.76.

The consensus revenue estimate of $4.55 billion for the first quarter (ending March 2024) represents a 6.2% increase year-over-year. The consensus EPS estimate of $0.13 for the same quarter indicates a 55.3% improvement year-over-year. The company topped the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 43.2% over the past year to close the last trading session at $8.22.

ASX’s POWR Ratings reflect its solid prospects. It has an A grade for Value and Momentum and a B for Sentiment. Of 92 stocks in the Semiconductor & Wireless Chip industry, it is ranked #25. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

In addition to the POWR Ratings we’ve stated, we also have ASX’s ratings for Growth, Stability, and Quality. Get all ASX ratings here.

Stock #2: inTEST Corporation (INTT)

INTT supplies test and process solutions to various industries worldwide, including automotive, defense/aerospace, industrial, life sciences, security, and semiconductors. The company operates through three segments: Electronic Test, Environmental Technologies, and Process Technologies.

On June 26, INTT announced that it had secured two orders worth over $3 million to provide its induction heating technology for a welding preheating application. The company is transitioning from a natural gas system to Ambrell’s eco-friendly electric induction heating systems for metal preheating before welding.

The systems will be deployed across multiple production lines, with possible expansion to other facilities, and deliveries are slated for the latter half of 2023. Further, this development can potentially boost the company’s total revenues and accelerate its growth.

For the fiscal second quarter that ended June 30, 2023, INTT’s revenue increased 10.1% year-over-year to $32.56 million, while its gross profit increased 10.9% year-over-year to $15.03 million. Its operating income improved 22.6% from the year-ago value to $3.34 million.

The company’s adjusted net earnings and non-GAAP EPS came in at $3.23 million and $0.28, representing 18.7% and 12% increases, respectively, from the prior-year quarter. Additionally, INTT’s adjusted EBITDA came in at $4.8 million, up 14.4% year-over-year.

Street expects INTT’s revenue to increase 6% year-over-year in the current quarter (ending September 2023) to $32.63 million. For the fiscal year 2023, its EPS and revenue are projected to reach $1.06 and $129.49 million, registering increases of 6.6% and 10.8% from the prior-year period. The company has an impressive surprise history, surpassing the consensus EPS and revenue estimates in each of the trailing four quarters.

The stock has gained 100% year-over-year to close the last trading session at $17.52.

INTT’s robust prospects are reflected in its POWR Ratings. It has an A grade for Momentum and a B for Value. It is ranked #22 out of 92 stocks in the same industry. Click here to see the other ratings of INTT for Growth, Stability, Sentiment, and Quality.

Stock #1: Diodes Incorporated (DIOD)

DIOD is a global semiconductor manufacturer specializing in application-specific standard products across discrete, logic, analog, and mixed-signal markets. Its product portfolio includes various discrete semiconductor components, analog devices, LED lighting drivers, and mixed-signal solutions.

On August 29, DIOD introduced two portfolios of monolithic Hall-effect switches designed for proximity sensing in battery-powered devices with ultra-low supply currents, making them ideal for smartphones, laptops, wearables, and more. Additionally, on July 11, DIOD introduced the AH171xQ series of high-sensitivity Hall-effect latches for automotive and industrial applications.

Such inventions could be beneficial for the company in terms of boosting its operations and revenue while improving the market sentiments toward DIOD.

DIOD’s net sales amounted to $467.15 million, while its gross profit came in at $195.38 million for the fiscal second quarter (ended June 30, 2023). The company’s net income attributable to common stockholders and EPS came in at $82.02 million and $1.77, representing increases of 2.3% and 1.1% year-over-year, respectively. Also, its non-GAAP EBITDA stood at $133.45 million, up 2.1% year-over-year.

For the fiscal year 2024, DIOD’s EPS and revenue are expected to reach $5.80 and $1.83 billion, registering increases of 5% and 2.7% year-over-year. Additionally, it surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.

Over the past year, the stock has gained 13.2% to close the last trading session at $81.85.

DIOD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system. It has an A grade for Value.

Within the same industry, it is ranked #18. Click here to view DIOD’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.

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ASX shares were trading at $8.29 per share on Friday afternoon, up $0.07 (+0.85%). Year-to-date, ASX has gained 39.16%, versus a 18.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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