The semiconductor industry’s outlook appears positive, owing to growing chip demand across a wide range of applications, increased acceptance of advanced technologies (AI), and attractive government initiatives and funding.
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects semiconductor industry.
The semiconductor market in the United States is a critical component of the worldwide technology industry. The Semiconductor Industry Association (SIA), reported that in 2022, about 48% of all the semiconductors sold around the world were from the United States.
As new technologies such as AI and the Internet of Things emerge, demand for semiconductors is likely to skyrocket, opening up enormous potential for innovation and growth in this industry.
President Biden signed the CHIPS and Science Act in July 2022, giving nearly $53 billion to boost US chip manufacturing, research, and workforce development. It also provides a 25% tax credit for capital investments in semiconductor manufacturing.
Since the implementation of the CHIPS law, businesses have announced investments totaling more than $166 billion in semiconductor and electronics manufacturing.
Moreover, according to Gartner, semiconductors designed to execute artificial intelligence (AI) workloads will provide a $53.4 billion revenue opportunity for the semiconductor industry in 2023, a 20.9% rise from 2022.
According to VMR research, the global semiconductor market is expected to reach $908.92 billion by 2030, with a CAGR of 8.7%. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 11% returns over the past six months.
In light of these encouraging trends, let’s look at the fundamentals of the three Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: Lam Research Corporation (LRCX)
LRCX designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits.
LRCX’s trailing-12-month EV/EBIT of 15.25x is 20% lower than the industry average of 19.07x. Its trailing-12-month Price/Cash Flow of 15.62x is 15.4% lower than the industry average of 18.46x.
LRCX’s trailing-12-month ROCE of 62.27% is significantly higher than the 1.01% industry average, while its trailing-12-month ROTC of 26.52% is significantly higher than the industry average of 2.13%.
LRCX’s total current assets came in at $13.23 billion for the period that ended June 25, 2023, compared to $12.85 billion for the period that ended June 26, 2022. Its total current liabilities came in at $4.18 billion, compared to $4.56 billion for the same period.
Street expects LRCX’s revenue to increase 19.3% year-over-year to $17.36 billion for the year ending June 2025. Its EPS is expected to grow at 31.9% year-over-year to $35.60 for the same period. It has surpassed EPS estimates in all the four trailing quarters.
LRCX’s shares have gained 53.1% over the past year to close the last trading session at $610.39. The stock is trading above its 200-day moving averages of $556.92.
LRCX’s POWR Ratings reflect this optimistic outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LRCX also has an A grade for Momentum and a B for Quality. It is ranked #33 out of 92 stocks in the Semiconductor & Wireless Chip industry. Click here for the additional POWR Ratings for Growth, Value, Stability and Sentiment for LRCX.
Stock #2: KLA Corporation (KLAC)
KLAC designs, manufactures, and markets process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. It operates through three segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB, Display and Component Inspection.
KLAC’s forward EV/EBIT of 17.26x is 2.8% lower than the industry average of 17.75x. Its forward non-GAAP P/E of 19.76x is 9.7% lower than the industry average of 21.88x.
KLAC’s trailing-12-month ROTC of 29.08% is significantly higher than the industry average of 2.13%. Its trailing-12-month net income margin of 32.27% is significantly higher than the industry average of 2.03%.
During the fourth quarter ended June 30, 2023, KLAC’s total revenues were $2.36 million. Its non-GAAP net income came in at $743 million. The company’s non-GAAP EPS came in at $5.40.
KLAC’s total assets came in at $14.07 billion for the period that ended June 30, 2023, compared to $12.60 billion for the period that ended June 30, 2022. Its total current assets came in at $8.37 billion, compared to $7.17 billion for the same period.
The consensus revenue estimate of $10.51 billion for the year ending June 2025 represents a 9.7% increase year-over-year. Its EPS is expected to grow at 16.6% year-over-year to $26.37 for the same period. It surpassed EPS estimates in all four trailing quarters.
Over the past year the stock has gained 38.4% to close the last trading session at $446.92. The stock is trading above its 200-day moving averages of $425.94.
KLAC is ranked #30 in the Semiconductor & Wireless Chip industry. It has an A grade for Momentum and Quality in our proprietary rating system. To see additional KLAC’s ratings for Value, Growth, Sentiment, and Stability, click here.
Stock #1: NVIDIA Corporation (NVDA)
NVDA propels computation to tackle complex computational problems. Its Compute & Networking arm entails a data center accelerated computing platform, automotive AI cockpit, and advanced networking, whereas the Graphics segment offers GeForce GPUs for gaming, PC, gaming platform solutions, and more.
On September 8, 2023, NVDA announced an extensive collaboration with Tata Group to provide AI computing infrastructure and platforms for creating AI applications. The alliance will deliver cutting-edge AI capabilities to thousands of organizations, corporations, and AI researchers in India, as well as hundreds of startups.
To attain best-in-class performance, the firms will collaborate to build an AI supercomputer powered by the next-generation NVIDIA® GH200 Grace Hopper Superchip.
NVDA’s forward non-GAAP PEG multiple of 1.14 is 34.6% lower than the industry average of 1.75.
NVDA’s trailing-12-month net income margin of 31.60% is significantly higher than the 2.03% industry average. Its trailing-12-month ROCE of 40.22% is significantly higher than the 1.01% industry average.
NVDA’s net revenue for the second quarter ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. Its non-GAAP operating income came in at $7.78 billion, up 486.9% year-over-year.
Also, its non-GAAP net income and non-GAAP EPS came in at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively.
Analysts expect NVDA’s revenue to increase 100.6% year-over-year to $54.10 billion for the year ending January 2024. Its EPS is expected to grow 224.1% year-over-year to $10.83 for the same period. It has surpassed EPS estimates in three of four trailing quarters.
The stock has gained 209.3% over the past year to close the last trading session at $410.17. The stock is trading above its 200-day moving average of $313.72.
NVDA has an A grade for Growth and Sentiment and a B grade for Momentum and Quality in our proprietary POWR Ratings system. It is ranked #28 in the same industry.
Beyond what is stated above, we’ve also rated NVDA for Stability and Value. Get all NVDA ratings here.
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LRCX shares were trading at $625.51 per share on Friday morning, up $15.12 (+2.48%). Year-to-date, LRCX has gained 50.23%, versus a 14.59% 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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