The demand for semiconductor chips is rising due to the increasing use of advanced technology-based devices amid the continued remote working culture. The growing electrical vehicle (EV) market is also boosting the demand for chips. While supply constraints are impacting the global semiconductor industry, the strong demand is allowing companies to raise prices for their chips and by so doing generate substantial profits.
President Joe Biden announced in April 2021 that he has bipartisan support for his proposed $50 billion funding to address the semiconductor shortage, which is a testament to the industry’s immense potential. Moreover, according to a Fortune Business Insights report, the global semiconductor market is expected to grow at an 8.6% CAGR between 2021 – 2028. Investors’ increased interest in the semiconductor industry is evidenced by SPDR S&P Semiconductor ETF’s (XSD) 65.9% returns over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 37.4% gains over this period.
Given this favorable backdrop, we think it is wise now to bet on chip stocks Intel Corporation (INTC), Vishay Intertechnology, Inc. (VSH) Tower Semiconductor Ltd. (TSEM), and Alpha and Omega Semiconductor Limited (AOSL) because they are still trading at reasonable valuations and have immense growth potential.
Intel Corporation (INTC)
One of the most established players in the technology space, INTC designs, manufactures, and sells essential technologies for the cloud, smart, and connected devices for its consumers across various sectors, including retail and industrial. The company’s segments include Data Center Group (DCG), Internet of Things Group (IOTG), Mobileye, and Non-Volatile Memory Solutions Group (NSG).
INTC launched its new 11th Generation Intel Core H-series mobile processors on May 11, led by the flagship Intel Core i9-11980HK—the ‘World’s Best Gaming Laptop Processor’ on May 3, 2021. Because the demand for gaming products and remote working needs are expected to continue to increase in the foreseeable future, INTC is expected to benefit.
On April 12, INTC announced that it will invest $3.5 billion to equip its New Mexico operations to manufacture advanced semiconductor packaging technologies, including Foveros, its breakthrough 3D packaging technology. This is expected to provide a boost to its sales because the demand for this solution is expected to increase in the near-term.
For its fiscal first quarter, ended March 27, 2021, INTC’s non-GAAP revenue was $18.57 billion, which exceeded 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 its January guidance by $0.29.
In terms of forward EV/EBITDA, INTC’s 7.49x is 55.5% lower than the 16.84x industry average. In terms of forward Price/Cash Flow, the stock’s 7.56x is 66.3% lower than the 22.44x industry average.
Its EPS is expected to grow at a 5.4% rate per annum over the next five years. INTC surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 14.8% over the past six months to close yesterday’s trading session at $56.89.
INTC’s POWR Ratings reflect this promising outlook. The company has an overall B 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 a B grade for Quality. Within the B-rated Semiconductor & Wireless Chip industry, INTC is ranked #20 of 98 stocks.
To see the additional POWR Ratings for INTC (Growth, Sentiment, Momentum and Stability), click here.
Vishay Intertechnology, Inc. (VSH)
VSH is a manufacturer and supplier of discrete semiconductors and passive electronic components. The company operates primarily through six segments—Metal Oxide Semiconductor Field Effect Transistors (MOSFETs), Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. It serves various end-markets, including industrial, computing, automotive, consumer, telecommunications, power supplies, military and aerospace, and medical.
The company introduced the world’s best AEC-Q101 qualified p-channel -80 V TrenchFET MOSFET on April 7. The product increases the power density and efficiency in automotive applications. It is expected to provide VSH with an edge over its peers.
On February 24, VSH launched the industry’s first SMD Ceramic Safety Capacitors with Y1 Rating of 500 VAC and 1500 VDC, delivering industry-high capacitance to 4.7 nF. Given that this capacitor helps to reduce production costs, the demand for it is expected to increase significantly in the coming months. Consequently, the company’s revenue might also increase in the near-term.
VSH’s net revenue increased 24.8% year-over-year to $764.63 million in the first quarter, ended April 3, 2021. Its operating income grew 105.2% year-over-year to $97.26 million. Its net earnings came in at $71.64 million, which represents a 161.6% year-over-year increase. The company’s EPS was $0.49, up 157.9% year-over-year.
In terms of forward EV/S, VSH’s 1.02x is 75.9% lower than the 4.24x industry average. The stock’s 1.08x forward Price/Sales ratio is 75% lower than the 4.32x industry average.
For the current quarter, ending June 30, 2021, analysts expect VSH’s EPS and revenue to increase 222.2% and 40%, respectively, year-over-year to $0.58 and $814.28 million. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock soared 46.4% over the past nine months to close yesterday’s trading session at $23.85.
VSH’s strong fundamentals are reflected in its POWR Ratings. The company has an overall B rating, which equates to Buy in our proprietary ratings system. The stock has an A grade for Value, and a B grade for Growth and Quality.
We have also graded VSH for Stability, Sentiment and Momentum. Click here to access all VSH’s ratings. VSH is ranked #11 in the same industry.
Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry that manufactures and markets analog intensive mixed-signal semiconductor devices in the United States, Japan, Asia, and Europe. It provides various customizable process technologies, including SiGe, BiCMOS, MEMS and RF CMOS. The company also offers wafer fabrication services and design enablement platform for design cycle.
On May 6, 2021, TSEM introduced Gpixel’s innovative indirect Time of Flight (iToF) sensor for 3D imaging, GTOF0503, utilizing TOWER’s pixel on its 65nm leading pixel-level stacked BSI CIS technology fabricated in its Uozo, Japan facility. As a result, the company is expected to grow significantly in the coming months, leveraging its advanced technologies and consistent product innovations.
The company introduced a newly developed, state-of-the-art galvanic capacitor technology on March 17, 2021, integrated with its 0.18um power management and mixed-signal platforms and enabling up to 12kV isolated gate driver and digital isolator ICs. The product might increase its sales in the near- to midterm.
TSEM’s revenue increased 15.7% year-over-year to $347.63 million in the first quarter, ended March 31. Its operating profit grew 97.6% year-over-year to $32.48 million. Its net profit came in at $30.51 million, which represents a 90.3% year-over-year increase. The company’s EPS was $0.26, up 62.5% year-over-year.
In terms of forward Price/Book ratio, TSEM’s 1.85x is 69.2% lower than the 6.01x industry average. Its 8.23x forward Price/Cash Flow is 63.3% lower than the 22.44x industry average.
Analysts expect TSEM’s EPS and revenue to increase 88.9% and 17.6%, respectively, year-over-year to $0.34 and $364.77 million for the quarter ending September 30, 2021. The stock has surged 37.4% over the past year to close yesterday’s trading session at $27.17.
It’s no surprise that TSEM has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Value, Momentum and Stability.
Click here to see TSEM’s ratings for Growth, Sentiment and Quality as well. TSEM is ranked #17 in the Semiconductor & Wireless Chip industry.
Alpha and Omega Semiconductor Limited (AOSL)
AOSL designs, develops, and supplies power semiconductor products for computing, consumer electronics, communication, and industrial applications. The company offers power discrete products that include MOSFET, SRFETs, XSFET and electrostatic discharge. It also provides power ICs, aMOS5 family, Transient Voltage Suppressors and EZBuck regulators, among others.
AOSL introduced a new series of Smart Power Stages (SPS) on May 18, 2021, targeting multiphase VR regulators that power high-performance GPUs and CPUs in desktops. This could lead to increasing sales for AOSL based on the growing demand from the gaming industry.
On April 14, 2021, AOSL introduced a new family of application-specific EZBuck regulators that included AOZ2263VQI-01 and AOZ2263VQI-02. According to the company, “The current capability offered by the AOZ2263VQI-01 and the AOZ2263VQI-02 offers designers an easy-to-use solution to support Intel’s Rocket Lake platform. In today’s ever shrinking desktop motherboard form factors, PCB real estate is at a premium. Utilizing AOS’s EZBuck regulator platform technology enables AOS to solve the system designer’s problem of ever-shrinking PCB real estate.”
AOSL’s net revenue increased 58.3% year-over-year to $169.2 million for fiscal third quarter, ended March 31, 2021. Its operating income grew 30.9% sequentially to $17.8 million. Its net Income came in at $16.10 million, which represents a 24.8% sequential increase. The company’s EPS came in at $0.58, up 23.4% sequentially.
In terms of forward Price/Sales, AOSL’s 1.32x is 69.4% lower than the 4.32x industry average. In terms of forward EV/S also, the stock’s 1.53x is 63.9% lower than the 4.24x industry average.
The company’s EPS and revenue is expected to increase 211.4% and 39.8%, respectively, year-over-year to $2.74 and $649.87 million in its fiscal year 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has rallied 219.7% over the past year to close yesterday’s trading session at $32.90.
AOSL’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has an A grade for Growth and Value, and a B grade for Sentiment.
To see the additional POWR Ratings for AOSL (Stability, Momentum and Quality), click here. AOSL is ranked #19 in the same industry.
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INTC shares were unchanged in after-hours trading Wednesday. Year-to-date, INTC has gained 17.48%, versus a 12.79% 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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