Despite the short-term slump, the semiconductor industry’s long-term growth prospects remain optimistic. While semiconductor sales declined in the first quarter of 2023, sales grew by 0.3% in March 2023 compared to February 2023, the first month-over-month increase in a year, suggesting a recovery.
The Biden-Harris Administration has announced the first CHIPS for America financing opportunity to revitalize the domestic semiconductor industry. The CHIPS and Science Act, a bipartisan Act, offers $39 billion in semiconductor incentives.
Secretary of Commerce, Gina M. Raimondo said, “The CHIPS and Science Act presents a historic opportunity to unleash the next generation of American innovation, protect our national security, and preserve our global economic competitiveness.”
Moreover, the artificial intelligence chip industry is predicted to reach $127.8 billion by 2028, with a 42.3% CAGR.
The global semiconductor market is expected to grow at a 13.1% CAGR until 2032. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 23.7% returns over the past three months and 33.2% over the past six months.
Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products worldwide. The company operates in two segments, Semiconductor Solutions, and Infrastructure Software.
AVGO’s forward non-GAAP P/E multiple of 19.68 is 8.2% lower than the industry average of 21.43. Its forward EV/EBIT multiple of 16.87 is 5.7% lower than the industry average of 17.89.
AVGO’s trailing-12-month ROCE of 54.45% is significantly higher than the industry average of 0.63%. Its trailing-12-month ROTA of 17.54% is significantly higher than the industry average of 0.08%.
AVGO’s non-GAAP net revenue for the fiscal first quarter ended January 29, 2023, increased 15.7% year-over-year to $8.92 billion. Its adjusted EBITDA increased 17.8% year-over-year to $5.68 billion.
Additionally, its non-GAAP net income increased 19.8% year-over-year to $4.48 billion. Its non-GAAP EPS came in at $10.33, representing a 23.1% increase from the year-ago period.
The consensus revenue estimate of $35.45 billion for the year ending October 2023 represents a 6.7% increase year-over-year. Its EPS is expected to grow 9.7% year-over-year to $41.29 for the same period. It surpassed EPS estimates in all four trailing quarters.
AVGO’s shares have gained 56% over the past nine months to close the last trading session at $812.73.
AVGO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AVGO has an A grade for Momentum and Quality and a B for Sentiment. It is ranked #11 out of 91 stocks in the Semiconductor & Wireless Chip industry. Click here for the additional POWR Ratings for Growth, Stability, and Value for AVGO.
Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSM is an independent semiconductor foundry that manufactures and markets analog-intensive mixed-signal semiconductor devices in the United States, Japan, other Asia countries, and Europe.
TSEM’s forward EV/EBITDA of 6.71x is 52.6% lower than the industry average of 14.15x. Its forward Price/Book multiple of 2.01 is 48% lower than the industry average of 3.86.
TSEM’s trailing-12-month ROCE of 15.52% is significantly higher than the industry average of 0.63%. Its trailing-12-month ROTA of 10.94% is significantly higher than the industry average of 0.08%.
In the first quarter that ended March 31, 2023, TSEM’s operating profit increased 41.8% year-over-year to $89.41 million. The company’s net income increased 32.1% year-over-year to $71.40 million, and EPS came in at $0.64, up 30.6% year-over-year.
Analysts expect TSEM’s revenue to increase 10.7% year-over-year to $1.61 billion in 2024. Its EPS is expected to grow 24.7% year-over-year to $2.48 in 2024. It surpassed EPS estimates in three of four trailing quarters. TSEM’s shares have gained 2.5% intraday to close its last trading session at $38.93.
It’s no surprise that TSEM has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Momentum and a B for Stability, Sentiment, and Quality. It is ranked #12 in the same industry.
Beyond what is stated above, we’ve also rated TSEM for Growth and Value. Get all TSEM ratings here.
Photronics, Inc. (PLAB)
PLAB, along with its subsidiaries, manufactures and sells photomask products and services in the United States, Taiwan, China, Korea, Europe, and internationally.
PLAB’s forward EV/EBITDA multiple of 3.73 is 73.6% lower than the industry average of 14.15. Its forward EV/EBIT multiple of 4.78 is 73.3% lower than the industry average of 17.89.
PLAB’s trailing-12-month ROCE of 13.87% is significantly higher than the industry average of 0.63%. Its trailing-12-month ROTA of 8.42% is significantly higher than the industry average of 0.08%.
PLAB’s total revenue increased 12.1% year-over-year to $229.31 million in the fiscal second quarter that ended April 30, 2023. The company’s non-GAAP net income and non-GAAP EPS came in at $32.90 million and $0.54, up 42.4% and 42.1% year-over-year, respectively, in the same period.
Street expects PLAB’s revenue to increase 10.4% year-over-year to $909.90 million in October 2023. Its EPS is expected to increase 3.6% year-over-year to $0.65 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 49.7% over the past month to close the last trading session at $21.23.
PLAB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has an A grade for Value and Momentum and a B for Quality. To see additional PLAB’s rating for Sentiment, Stability, and Growth, click here.
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AVGO shares were trading at $874.88 per share on Tuesday morning, up $62.15 (+7.65%). Year-to-date, AVGO has gained 57.60%, versus a 10.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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