The major stock market indexes rebounded yesterday as investors reassessed their COVID-19 omicron-variant related fears. However, the stock market has remained volatile, with the Federal Reserve considering shutting down its support for financial markets sooner-than-expected. In addition, the U.S. economy created far fewer jobs than expected in November, adding to the bleak outlook.  And amid current market volatility, an ongoing semiconductor chip shortage continues to impact the production of cars, consumer appliances, personal computers, and smartphones.

According to JPMorgan Chase & Co. (JPM) analyst Gokul Hariharan, the semiconductor chip shortage may drag on until 2022. However, the situation is expected to improve from mid-year onwards when supplies become more readily available. According to an International Data Corporation (IDC) report, the semiconductor market is expected to reach $600 billion by 2025, growing at a 5.3% CAGR, versus its 3-4% historical growth.

Given this backdrop, we think it could be wise to bet on quality semiconductor stocks Microchip Technology Incorporated (MCHP), ASE Technology Holding Co., Ltd. (ASX), and Alpha and Omega Semiconductor Limited (AOSL). These names have outperformed the major market indexes’ minimal returns over the past week. In addition, they have an overall B (Buy) rating in our proprietary POWR Ratings system.

Click here to checkout our Semiconductor Industry Report for 2021

Microchip Technology Incorporated (MCHP)

MCHP develops, manufactures, and sells connected and secure embedded control solutions for use in various applications. The Chandler, Ariz.-based company operates in the semiconductor products and technology licensing segments. It also offers specialized automotive, industrial, computing, and communications microcontrollers.

On December 1, MCHP announced an expansion of its Gallium Nitride Radio Frequency power device portfolio with new MMICs and discrete transistors that cover frequencies up to 20 gigahertz. The new Monolithic Microwave Integrated Circuits and discrete devices will likely deliver the high levels of performance required in 5G, satellite communication, and defense applications. This could lead to increased demand for its solutions.

MCHP’s net sales for its fiscal second quarter, ended September 30, 2021, increased 26% year-over-year to $1.65 billion. The company’s non-GAAP operating income came in at $700.70 million, up 36.3% year-over-year. In addition, its non-GAAP net income increased 45.4% year-over-year to $605.60 million, while its non-GAAP EPS came in at $1.07, representing a 37.1% year-over-year rise.

Analysts expect MCHP’s EPS for the quarter ending December 31, 2021, to increase 44.4% year-over-year to $1.17. Its revenue for its fiscal year 2022 is expected to grow 24% year-over-year to $6.74 billion. It has surpassed the Street’s EPS expectations in each of the trailing four quarters. The stock has gained 21.5% in price year-to-date and 4.7% over the past week to close yesterday’s trading session at $83.95.

MCHP’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

It has an A grade for Momentum and a B grade for Growth. It is ranked #35 of 99 stocks in the A-rated Semiconductor & Wireless Chip industry. Click here to check the other ratings of MCHP for Value, Stability, Sentiment, and Quality.

ASE Technology Holding Co., Ltd. (ASX)

Based in Kaohsiung, Taiwan, ASX provides a range of semiconductor packaging and testing and electronic manufacturing services. The company offers integrated circuit services that consist of packaging services, including packaging and module design, IC packaging and multi-chip packaging, testing services that include previous  testing, wafer pin testing, and finished product testing.

On December 1, 2021, ASX announced that it had sold four of its facilities in China to a Beijing-based private equity firm, Wise Road Capital, for $1.46 billion. The company said it will use the $630 million profit from the transaction to “strengthen Taiwan’s high-end technology R&D and production capacity.”

For its fiscal third quarter, ended September 30, 2021, ASX’s net revenues increased 22.2% year-over-year to NT$150.66 billion ($5.43 billion). The company’s gross profit increased 56.1% year-over-year to NT$30.78 billion ($1.11 billion), while its net income increased 111.2% year-over-year to NT$14.17 billion ($511.13 million). Also, its EPS came in at NT$3.20, representing a 107.7% year-over-year rise.

ASX’s EPS and revenue for its fiscal 2021 is expected to increase 61.4% and 22.7%, respectively, year-over-year to $0.71 and $19.88 billion. It has surpassed consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 33.2% in price to close yesterday’s trading session at $7.65. Also, it has surged 7.3% over the past week.

ASX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.

ASX has an A grade for Value and Sentiment and a B grade for Momentum. It is ranked #54 in the Semiconductor & Wireless Chip industry. Click here to see ASX’s other ratings (Growth, Stability, and Quality).

Alpha and Omega Semiconductor Limited (AOSL)

AOSL in Sunnyvale, Calif., designs, develops, and supplies power semiconductors. The company’s portfolio of products focuses on high-volume applications, such as personal computers, flat-panel televisions, smartphones, consumer, and industrial motor controls. It also offers power semiconductors, including a portfolio of Power MOSFET, IGBT, IPM, TVS, HVIC, GaN/SiC, Power IC, and digital power products.

On December 2, 2021, AOSL announced the release of a 600V Low Ohmic and Fast Body Diode αMOS5 Super Junction MOSFETs family. αMOS5 is AOSL’s latest high voltage MOSFET that is designed to meet the high efficiency and high-density needs for quick chargers, adapter, PC power, telecom, and hyper-scale data center applications. So, the product could help boost the company’s revenue.

AOSL’s revenue for its fiscal first quarter, ended September 30, 2021, increased 23.3% year-over-year to $187 million. The company’s non-GAAP operating income increased 100% year-over-year to $30.80 million, while its non-GAAP net income increased 102% from the same period last year to $29.30 million.

Analysts expect AOSL’s EPS for the second quarter, ending December 31, 2021, to increase 60% year-over-year to $1.04. Its revenue for its fiscal year 2022 is expected to increase 14.1% year-over-year to $749.50 million. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 10.2% over the past week and 102.4% year-to-date to close yesterday’s trading session at $47.85.

AOSL’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to a Buy in our proprietary rating system.

It has an A grade for Value and Momentum and a B grade for Growth. It is ranked #27 in the Semiconductor & Wireless Chip industry. Click here to check the other ratings of AOSL for Stability, Sentiment, and Quality.

Click here to checkout our Semiconductor Industry Report for 2021

MCHP shares were trading at $88.34 per share on Tuesday morning, up $4.39 (+5.23%). Year-to-date, MCHP has gained 29.17%, versus a 26.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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