Over the past two years, acute semiconductor chip shortages due to supply chain disruptions have caused a significant revenue decline in the global market. Although the supply chain challenges are expected to remain this year, the industry’s ‘crucial’ status in the operation of several sectors makes its prospects bright. The semiconductor market is expected to grow at a 9.25% CAGR to $893.10 billion by 2029.
Rising demand for consumer electronics, advancements in Artificial Intelligence (AI), IoT, and wirelessly connected devices, and increased demand for integrated circuits in developing economies should boost the semiconductor market’s growth. Furthermore, rapid digital transformation across almost every industry is creating new markets for the semiconductor industry.
Given this backdrop, we think it could be wise to buy these growth stocks in the semiconductor industry: Micron Technology, Inc. (MU), United Microelectronics Corporation (UMC), and QUALCOMM Incorporated (QCOM). They each look undervalued at their current price levels.
Micron Technology, Inc. (MU)
MU designs, manufactures, and sells memory and storage products worldwide. The Boise, Idaho, company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.
On May 31, MU announced the forthcoming availability of two new consumer storage products, the Crucial P3 Plus Gen4 NVMe and Crucial P3 NVMe solid-state drives (SSDs). These products should expand its award-winning Crucial NVMe SSD product portfolio, provide consumers with faster, affordable, and reliable choices, and enhance its revenue stream.
On April 12, MU announced the bulk production of its new 16Gb GDDR6X memory with twice the capacity and up to 15% higher performance over the previous 8Gb version. These additional capabilities will provide razor-sharp visuals, higher frame rates, and outstanding performance in memory-intensive applications like gaming. MU’s continued performance leadership and innovation should expand its customer base.
MU’s revenue increased 24.9% from the prior-year quarter to $7.79 billion in its fiscal second quarter, ended March 3, 2022. The company’s gross margin for the quarter came in at $3.68 billion, reflecting an increase of 122.9% year-over-year, while its operating income stood at $2.55 billion, up 284% year-over-year. The company’s EPS came in at $2, up 277.4% from the prior-year quarter. Its total assets and revenue have increased at CAGRs of 10.3% and 1.3%, respectively, over the past three years.
In terms of its forward EV/Sales, MU is currently trading at 2.20x, which is 24.4% lower than the 2.91x industry average. Its 3.90 forward EV/EBITDA multiple is 69.4% lower than the 12.76 industry average.
The $2.47 consensus EPS estimate for its fiscal quarter ended May 31, 2022, represents a 31.4% improvement year-over-year. The $8.69 billion consensus revenue estimate for the same quarter represents a 17.2% increase from the same period last year. It has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.
MU has slumped 24.4% in price year-to-date to close the last trading session at $70.45.
MU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MU also has an A grade in Value and a B in Quality, Momentum, and Growth. It is ranked #10 of 95 stocks in the B-rated Semiconductor & Wireless Chip industry.
Beyond what is stated above, we have also rated MU for Stability and Sentiment. Get all the MU ratings here.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a semiconductor wafer foundry in Taiwan, the United States, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services.
UMC’s operating revenues increased 34.7% year-over-year to NT$63.42 billion ($2.16 billion) in its fiscal first quarter of 2022. Its gross profit grew 120.1% from its year-ago value to NT$27.50 billion ($0.94 billion), while its operating income improved 193% year-over-year to NT$22.33 billion ($0.76 billion). Its EPS increased 89.4% from its year-ago value to NT$1.61. Its EBITDA and its net income have increased at CAGRs of 27% and 137.3%, respectively, over the past three years.
In terms of its forward EV/EBIT, UMC is currently trading at 5.81x, which is 63.9% lower than the16.11x industry average. Its 2.44 forward Price/Sales multiple is 17.3% lower than the 3.00 industry average.
UMC’s revenue for the current quarter is expected to come in at $2.29 billion, indicating 25.8% year-over-year growth. The company’s EPS is expected to increase 85.2% year-over-year to $0.33 for the same quarter. UMC also beat the consensus EPS estimates in the trailing four quarters.
UMC has gained 9.9% in price over the past month to close the last trading session at $8.88. However, it has slumped 24.1% year-to-date.
UMC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock also has an A grade in Quality and a B in Growth and Value. The stock is ranked #2 in the Semiconductor & Wireless Chip industry. To get UMC’s ratings for Momentum, Stability, and Sentiment, click here.
QUALCOMM Incorporated (QCOM)
QCOM in San Diego, Calif., engages in developing and commercializing foundational technologies for the wireless industry worldwide. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
On May 17, Advanced Micro Devices, Inc. (AMD), and Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated, announced a collaboration to optimize the Qualcomm® FastConnect™ connectivity system for AMD Ryzen™ processor-based computing platforms and bring secure Wi-Fi remote management to AMD enterprise customers. This marks their first step in bringing superior wireless connectivity to the AMD mobile computing roadmap. This partnership should prove to be strategically beneficial for the company.
On April 4, QCOM announced the completion of its acquisition of Arriver™ from SSW Partners, enhancing Qualcomm Technologies’ ability to deliver open, fully integrated, and competitive advanced driver assistance system (ADAS) solutions to automakers and Tier-1 suppliers at scale. “As we become a key technology partner to the automotive industry, Arriver’s driver assistance assets will accelerate our efforts to deliver a leading ADAS solution as part of our Snapdragon® Digital Chassis™ platform,” said Nakul Duggal, senior vice president and GM, automotive, QCOM.
For its fiscal second-quarter, ending March 31, 2022, QCOM’s revenue increased 40.8% year-over-year to $11.16 billion. Its non-GAAP earnings before taxes grew 68% from the year-ago value to $4.26 billion. Its non-GAAP net income for the quarter stood at $3.67 billion, reflecting a 67.6% increase year-over-year. Furthermore, the company’s non-GAAP EPS was $3.21, up 69% from the prior-year quarter. Its EPS and net income have increased at CAGRs of 75.1% and 66.4%, respectively, over the past three years.
In terms of its forward EV/EBIT, QCOM is currently trading at 9.39x, which is 41.7% lower than the 16.11x industry average Its 8.53 forward EV/EBITDA multiple is 33.2% lower than the 12.76 industry average.
The Street expects QCOM’s EPS for the current quarter ending June 2022 to improve 50% year-over-year to $2.88. The $10.89 billion consensus revenue estimate for the same period represents a 36.2% increase year-over-year. The company also surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 4.5% in price to close yesterday’s trading session at $140.44. However, the stock has slumped 23.2% year-to-date.
It is no surprise that QCOM has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade in Value, Growth, Momentum, Quality, and Sentiment. The stock is ranked #6 in the Semiconductor & Wireless Chip industry.
In addition to the POWR Rating grades I have just highlighted, one can see the QCOM’s ratings for Stability here.
Note that QCOM is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
What To Do Next?
If you would like to see more top growth stocks, then you should check out our free special report:
What makes them “MUST OWN”?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +48.22% a year.
Click below now to see these top performing stocks with exciting growth prospects:
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MU shares were trading at $70.60 per share on Tuesday afternoon, up $0.15 (+0.21%). Year-to-date, MU has declined -24.10%, versus a -12.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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