Since 2014, president and chief executive officer Lisa Su’s leadership has helped popular chipmaker Advanced Micro Devices, Inc. (AMD) make a strong comeback, and its stock has gained almost 1500% over the past five years. Product innovations have made AMD a solid rival to Intel Corporation (INTC) in the CPU market and NVIDIA Corporation (NVDA) in the GPU market. AMD chips, which are manufactured by Taiwan Semiconductor Manufacturing Company (TSM), are run on Sony (SONY) PlayStation and Microsoft’s (MSFT) Xbox gaming consoles.
But because geopolitical tensions between Taiwan and China and the reimposition of COVID-19 restrictions could significantly affect TSM’s production, AMD could suffer from its dependence on TSM. In addition, AMD’s overvaluation is expected to turn off investors amid the current market volatility. AMD’s 8.60x forward Price/Sales is 120% higher than the 3.91x industry average. AMD closed yesterday’s session at $107.48, which is 12.3% lower than its 52-week high.
While the global chip shortage puts pressure on semiconductor companies worldwide, strong demand from various industries and increasing government and private investments worldwide should drive growth for some of the leading companies in the space. Consequently, we believe Broadcom Inc. (AVGO), STMicroelectronics N.V. (STM), Amkor Technology, Inc. (AMKR), and Diodes Incorporated (DIOD) are well-positioned to outperform the broader market in the near term based on their latest developments and solid quarterly financials. So, we think these stocks are better investments than AMD now.
Broadcom Inc. (AVGO)
AVGO in San Jose, Calif., designs, develops, and supplies a range of analog and digital semiconductor connectivity solutions, including wired infrastructure, wireless communications, enterprise storage, etc. The company’s products are used in data center networking, home connectivity, broadband access, telecommunications equipment, smartphones, and base stations.
On June 15, 2021, AVGO announced industry-first capabilities for Value Stream Management (VSM) in its ValueOps software portfolio that seamlessly combines business and investment-oriented product management. Integration of AVGO’s Clarity and Rally software products enables enterprises to manage, track and analyze unified value streams with a consistent value orientation and methodology. As a recipient of the Leader award in the 2021 Enterprise Agile Planning Tools, AVGO hopes the recognition helps ValueOps gain expanded market reach in the coming months.
On June 03, AVGO announced the availability of its expanded portfolio of 100Gb, 200Gb, 400Gb, and 800Gb electro-optics platform solutions for data center and cloud networks. With its full line of end-to-end solutions, data center operators and cloud providers can cost-effectively deploy 100Gb, 200Gb, 400Gb, and 800Gb links to expand their network capacity and support growing bandwidth demands. The company expects these proven technologies to drive the next evolution of high bandwidth network connectivity.
AVGO’s non-GAAP net revenue for its fiscal second quarter, ended May 2, 2021, was $6.61 billion, representing a 15.1% year-over-year improvement. The company’s non-GAAP gross profit increased 18% year-over-year to $4.95 billion. AVGO’s non-GAAP operating income was $3.80 billion for the quarter, up 25.4% from the prior-year period. While its non-GAAP net income increased 28.3% year-over-year to $2.98 billion, its non-GAAP EPS increased 28.8% year-over-year to $6.62. As of May 2, 2021, the company had $9.52 billion in cash and cash equivalents.
A $7.50 consensus EPS estimate for the current quarter, ending October 31, 2021, represents an 18.1% year-over-year improvement. AVGO surpassed consensus EPS estimates in each of the trailing four quarters. The $7.24 billion consensus revenue estimate for the current quarter represents an 11.9% gain from the prior-year period. Analysts expect the stock’s EPS to grow at an 8.5% rate per annum over the next five years.
The stock has gained 30.2% over the past nine months and 12.9% over the past three months. It closed yesterday’s trading session at $488.14.
AVGO’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade Growth, Stability, Quality, Momentum, and Sentiment. Click here to see the additional ratings for AVGO’s Value. AVGO is ranked #6 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in AVGO for a 25% gain. Learn more about the RTR service here.
STMicroelectronics N.V. (STM)
STM is a Swiss-based semiconductor company that manufactures and markets semiconductor integrated circuits and discrete devices worldwide. The company sells its products through distributors and retailers, as well as through sales representatives serving telecommunications, consumer electronics, automotive, computer, and industrial sectors.
In an announcement dated July 27, 2021, STM said it manufactured the first 200mm Silicon-Carbide (SiC) bulk wafers for prototyping next-generation power devices from its facility in Sweden. This marks a milestone in STM’s capacity build-up to support automotive and industrial sectors as they accelerate the transition to electrification of systems and products.
On July 21, STM and Unilumin, a China-based manufacturer of LED application products and solutions, developed a new Unilumin display using ST60A2, STM’s 60GHz RF transceiver for advanced high-data-rate contactless-transfer solutions. Operating over an extended temperature range of -40 to +105°C, ST60A2 offers point-to-point, high-data-rate transmission, suitable for advanced video solutions and other large-data applications. Both companies anticipate a long-term partnership.
For its fiscal second quarter, ended July 3, 2021, STM’s net revenues increased 43.4% year-over-year to $2.99 billion. The company’s gross profit came in at $1.21 billion, up 66% from the prior-year period. Its operating income came in at $489 million, representing a 361.3% year-over-year improvement. STM’s net income came in at $413 million, up 353.8% from the prior-year period. Its EPS increased 340% year-over-year to $0.44. As of July 3, 2021, the company had $3.75 billion in cash and cash equivalents.
Analysts expect STM’s EPS to improve 101.4% in the current quarter, ending September 30, 2021, to $0.53. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Analysts expect its revenue to be $3.20 billion for the current quarter, representing a 20% rise year-over-year. Its EPS is expected to grow at a 5% rate per annum over the next five years.
The stock has gained 25.6% over the past nine months and 13% over the past month. It ended yesterday’s trading session at $43.13.
It’s no surprise that STM has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock has an A grade for Sentiment, and a B grade for Growth, Value, Quality, and Momentum. Click here to see the additional ratings for STM’s Stability. STM is ranked #3 in the Semiconductor & Wireless Chip industry.
Amkor Technology, Inc. (AMKR)
AMKR provides outsourced semiconductor packaging and test services worldwide. The Tempe, Ariz., company offers deep submicron wafer fabrication, wafer probe testing, integrated circuit packaging assembly and design, final testing, reliability testing, burn-in, and electrical characterization. It serves integrated device manufacturers, fabless semiconductor companies, OEMs, and contract foundries.
In an announcement dated August 10, AMKR said it is advancing the evolution of 5G RF module design, characterization, and packaging technology. AMKR’s double-sided, molded ball grid array (DSMBGA) platform and other advanced System in Package (SiP) technologies should enable it to capitalize on the rising demand for packages that support 5G.
On February 23, AMKR unveiled new measures that should help the company achieve Industry 4.0 initiatives, enabling factory automation. By leveraging artificial intelligence, machine learning, and interconnected systems, Industry 4 aims to improve product and service quality, decision-making speed on the factory floor, and utilization of high-value assets. AMKR is looking forward to reducing cycle times for advanced packaging processing with these tools.
AMKR’s net sales came in at $1.41 billion for its fiscal second quarter, ended June 30, 2021, representing a 19.9% year-over-year rise. The company’s gross profit increased 41.9% year-over-year to $272.82 million. Its operating income has been reported at $155.12 million, up 79.3% from the prior-year period. While its net income increased 127% year-over-year to $125.81 million, its EPS increased 121.7% year-over-year to $0.51. As of June 30, 2021, the company had $724.79 million in cash and cash equivalents.
A $0.70 consensus EPS estimate for the current quarter, ending September 30, 2021, represents an 84.2% improvement year-over-year. AMKR surpassed consensus EPS estimates in each of the trailing four quarters. The $1.70 billion consensus revenue estimate for the current quarter represents a 25.7% gain from the prior-year period. Analysts expect the stock’s EPS to grow at 25.4% per annum over the next five years.
The stock has gained 89.5% over the past nine months and 18.7% over the past month. It closed yesterday’s trading session at $26.
AMKR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Value, and a B grade for Growth, Sentiment, and Momentum. We also have graded AMKR for Quality and Stability. Click here to access all AMKR’s ratings. AMKR is ranked #8 in the Semiconductor & Wireless Chip industry.
Diodes Incorporated (DIOD)
DIOD manufactures and supplies discrete, logic, and analog and mixed-signal semiconductor devices to the consumer electronics, computing, communications, industrial, and automotive markets. It sells its products through direct sales and marketing personnel, independent sales representatives, and distributors. DIOD is based in Plano, Tex.
On August 10, DIOD introduced the PAM8907 piezoelectric sounder driver for maximizing sound pressure level (SPL) delivery from a ceramic/piezo sounder. With a built-in synchronous boost converter, and operating across an ambient temperature range, the PAM8907 extends SPL in battery-powered systems optimized for use in wireless trackers, industrial alarm systems, medical equipment, domestic appliances, and longer runtimes.
DIOD reinforced its extensive linear ReDriver IC portfolio by introducing two new 3.3V-rated multi-lane active demux devices on July 29. These advanced ReDrivers address the demux needs set by the intense functions of mobile workstations, gaming PCs, and display dongles. Able to provide ultra-low latency operations with lower supply voltages, DIOD expects to gain expanded market reach across the industry.
DIOD’s net sales for its fiscal second quarter, ended June 30, 2021, increased 52.6% year-over-year to $440.45 million. The company’s gross profit came in at $159.80 million, up 57.5% from the prior-year period. Its income from operations has been reported at $65.36 million for the quarter, representing a 111.7% year-over-year improvement. While its non-GAAP net income increased 90.8% year-over-year to $54.63 million, its non-GAAP EPS increased 122.2% year-over-year to $1.20. The company had $292.65 million in cash and cash equivalents as of June 30, 2021.
A $1.38 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 121.8% improvement from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect DIOD’s revenue to be $467.23 million for the current quarter, representing a 51% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 15% rate per annum over the next five years.
DIOD has gained 39.9% over the past nine months and 23.6% over the past month. It closed yesterday’s trading session at $90.90.
DIOD’s POWR Ratings reflect its solid prospects. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system.
DIOD has a B grade for Growth, Value, Sentiment, and Momentum. In addition to the POWR Ratings grades we’ve just highlighted, one can see DIOD’s ratings for Stability and Quality here. DIOD is ranked #7 in the Semiconductor & Wireless Chip industry.
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AVGO shares were trading at $478.03 per share on Tuesday morning, down $10.11 (-2.07%). Year-to-date, AVGO has gained 10.89%, versus a 19.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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