The remote working and shopping trend is expected to continue even in the post-pandemic environment due to the convenience and efficiency the activity affords. The demand for semiconductors is here to stay because these chips are the backbone of most of the advanced technology devices. While supply constraints are impacting the industry, strong demand is allowing companies to raise prices for their chips and generate substantial profit. Investors’ increasing interest in the industry is evidenced by SPDR S&P Semiconductor ETF’s (XSD) 100.6% returns over the past year versus the SPDR S&P 500 ETF’s (SPY) 49.3% gains over this period.
Continued advancements in computing, artificial intelligence (AI), Internet of Things (IoT), 5G, and driverless cars are expected to keep driving the demand in the semiconductor space. According to WBOC, the worldwide market for semiconductor equipment is expected to grow at a CAGR of 6.9% over the next five years.
Against this backdrop, we think it is wise to bet on established semiconductor players Intel Corporation (INTC), ASE Technology Holding Co., Ltd. (ASX), Amkor Technology, Inc. (AMKR), and ChipMOS Technologies Inc. (IMOS) that are still trading at reasonable valuations and hold immense growth potential.
Intel Corporation (INTC)
Headquartered in Santa Clara, Calif., INTC designs, manufactures, and sells essential technologies for the cloud, smart, and connected devices for its consumers across various sectors, such as retail and industrial. The company’s segments include its Data Center Group (DCG), Internet of Things Group (IOTG), Mobileye, and Non-Volatile Memory Solutions Group (NSG), among other segments.
In early April, the company launched its new 3rd Gen Intel Xeon Scalable processors. They are the most advanced, highest performance data center platforms optimized to power the industry’s broadest range of workloads from the cloud to the network to the intelligent edge. As the demand for artificial intelligence (AI) integrated solutions continues to increase, the demand for this product is also expected to increase in the coming months.
On April 12, INTC’s Mobileye and Udelv, a Silicon Valley venture-backed company, announced that Mobileye’s self-driving system―branded Mobileye Drive―will support the next-generation Udelv autonomous delivery vehicles (ADV) named ‘Transporters’. The deal indicates that Mobileye Drive is ready for commercial deployment regarding the autonomous transportation of goods and people.
For its fiscal year 2021 first quarter, ended March 27, 2021, INTC’s non-GAAP revenue was $18.57 billion, which exceeded its January guidance by $1.10 billion. Its revenue from its Mobileye segment increased 48.4% year-over-year to $377 million, while its revenue from its adjacency segment increased 33% year-over-year to $753 million. The company’s non-GAAP EPS came in at $1.39, which exceeded January guidance by $0.29.
Its EPS is expected to grow at a rate of 5.4% per annum over the next five years. INTC surpassed the Street’s EPS estimates in three of the trailing four quarters. And in terms of forward enterprise value/EBITDA, INTC’s 7.68x is 55.9% lower than the 17.42x industry average. In terms of forward price/cash flow, the stock’s 8.08x is 64.6% lower than the 22.85x industry average.
The stock has gained 22.9% over the past six months and closed Friday’s trading session at $59.24.
INTC’s POWR Ratings reflect a promising outlook. The company has an B overall rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value and Quality, and a B grade for Sentiment. Within the B-rated Semiconductor & Wireless Chip industry, INTC is ranked #9 of 98 stocks.
To see the additional POWR Ratings for INTC (Growth, Momentum, and Stability), click here.
ASE Technology Holding Co., Ltd. (ASX)
ASX provides a range of semiconductor packaging and testing services, and electronic manufacturing services internationally. In addition, it develops, constructs, sells, leases, and manages real estate properties, produces substrates, offers information software, equipment leasing, financing, investment advisory, and warehousing management services, and processes and sells computer and communication peripherals, electronic components, telecommunications equipment, and motherboards, and imports and exports goods and technology.
In December 2020, ASX’s ASE Inc., along with Chunghwa Telecom Co., Ltd. (CHT) and QUALCOMM Incorporated (QCOM), unveiled the world’s first smart factory powered by a private 5G mmWave network located at ASE Kaohsiung, Taiwan. Four use cases at the facility were identified for the deployment: AI + AGV (Artificial Intelligence + Automated Guided Vehicles), smart transportation, Remote Augmented Reality assistance, and the AR experience at ASE Green Technology Education Center. So, thanks to the smart factory, ASX is well-positioned to make continuous technological innovations and meet growing market demand.
The company’s net revenues increased 28% year-over-year to NT$148.88 billion for the fourth quarter, ended December 31, 2020. Its net income grew 57.3% year-over-year to NT$10.04 billion, while its EPS increased 56.5% year-over-year to NT$2.30.
For the quarter ended March 31, 2021, analysts expect ASX’s EPS and revenue to increase 93.9% and 29.6%, respectively, year-over-year. It surpassed consensus EPS estimates in each of the trailing four quarters. In terms of forward price/sales ratio, ASX’s 0.88x is 78.5% lower than the 4.08x industry average. In terms of forward enterprise value/sales ratio, the stock’s 1.16x is 73.3% lower than the 4.36x industry average.
The stock has gained 93.1% over the past year and closed Friday’s trading session at $8.07.
ASX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Value and Sentiment, and a B grade for Momentum and Stability.
We have also graded ASX for Growth and Quality. Click here to access all ASX’s ratings. ASX is ranked #27 in the same industry.
Amkor Technology, Inc. (AMKR)
Founded in 1968, AMKR provides outsourced semiconductor packaging and test services across the United States, Japan, Europe, the Middle East, Africa, and rest of the Asia Pacific. It serves primarily integrated device manufacturers, fabless semiconductor companies, original equipment manufacturers, and contract foundries. The company offers turnkey packaging and test services that include semiconductor wafer bump, wafer probe, wafer back-grind, package design, packaging, and test and drop shipment services.
On February 23, AMKR unveiled several new measures, such as the use of K5 in Incheon, that are expected to help it achieve Industry 4.0 initiatives. By transforming its factories into highly intelligent, automated systems, AMKR is leveraging Industry 4.0 tools to stay future-ready while delivering near real-time data accuracy with maximum efficiency.
AMKR’s net sales increased 16.3% year-over-year to $1.37 billion for the fourth quarter, ended December 31, 2020. Its operating profit grew 34.7% year-over-year to $159 million, while its net income increased 28.3% year-over-year to $127 million. The company’s EPS increased 26.8% year-over-year to $0.52.
For the quarter ending June 30, 2021, analysts expect AMKR’s EPS and revenue to increase 87% and 14.8%, respectively, year-over-year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. In terms of forward enterprise value/sales ratio, AMKR’s 1.11x is 74.5% lower than the 4.36x industry average. In terms of forward price/sales ratio, the stock’s 1.02x is 74.9% lower than the 4.08x industry average.
The stock has rallied 159.8% over the past year and closed Friday’s trading session at $23.82.
It’s no surprise that AMKR has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Momentum and Sentiment.
Click here to see AMKR’s rating for Growth, Stability, and Quality. AMKR is ranked #16 in the Semiconductor & Wireless Chip industry.
ChipMOS Technologies Inc. (IMOS)
Based in Hsinchu, Taiwan, IMOS researches, develops, manufactures, and sells high integration and high precision integrated circuits (ICs) and related assembly and testing services. Its segments include testing and assembly for liquid crystal display and other flat panel display driver semiconductors, and bumping. The company’s products and services are applied across information products, personal computers, communication equipment, office automation and consumer electronics markets.
For the fiscal year 2021 first quarter (ended March 31, 2021), IMOS’ revenue was $227 million, which represents a 15.7% year-over-year increase. This impressive performance was driven primarily by strong memory and DDIC demand, along with improvements in both volumes and pricing. Its revenue for the month of March also came in at $82.30 million, representing a new record high for the company.
Analysts expect IMOS’ revenue to increase 35.1% year-over-year to $248.82 million for the quarter ending June 30, 2021. In terms of forward enterprise value/EBITDA, IMOS’s 4.02x is 76.9% lower than the 17.42x industry average. In terms of forward price/sales ratio, the stock’s 1.27x is 68.8% lower than the industry average 4.08x.
The stock has gained nearly 85% over the past year and closed Friday’s trading session at $34.70.
IMOS’ POWR Ratings reflect solid prospects. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. It has an A grade for Value, and a B grade for Stability, Sentiment, and Momentum.
To see additional POWR Ratings for IMOS (Growth and Quality), click here. IMOS is ranked #2 in the same industry.
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INTC shares were trading at $59.21 per share on Monday afternoon, down $0.03 (-0.05%). Year-to-date, INTC has gained 20.28%, versus a 12.02% 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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