Amid escalating macro headwinds, the outlook for the chips and semiconductor industry has been deteriorating. On October 13, 2022, Taiwan Semiconductor Manufacturing Company Limited (TSM) slashed its annual investment budget by at least 10% for 2022. However, the $52 billion CHIPS and Science Act is expected to support domestic chip manufacturing.

According to the Semiconductor Industry Association, global semiconductor industry sales increased year-over-year to $47.40 billion in August 2022. Furthermore, driven by robust demand for semiconductors across industries, the global market is projected to grow at a CAGR of 6.2% from 2022 to 2031.

Given the backdrop, we believe fundamentally sound chip stocks like QUALCOMM Incorporated (QCOM) and Photronics, Inc. (PLAB), which seem poised to deliver stable returns over the long term, could be ideal buy-and-hold options.

QUALCOMM Incorporated (QCOM)

QCOM is involved in creating and marketing key technologies for the global wireless market. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).

On September 22, 2022, QCOM announced that the company’s automotive design-win pipeline increased to $30 billion, driven by increased adoption of its Snapdragon® Digital Chassis™ solutions across the auto industry. This is a significant achievement that might accelerate future growth for the company.

QCOM’s total revenues came in at $10.94 billion for the third quarter that ended June 26, 2022, up 35.7% year-over-year. Moreover, its net income came in at $3.73 billion, up 84% year-over-year. Also, its EPS came in at $3.29, up 85.9% year-over-year.

QCOM’s revenue is expected to increase 31.9% year-over-year to $44.16 billion in 2022. Its EPS is expected to grow 46.8% year-over-year to $12.54 in 2022. It surpassed EPS estimates in all four trailing quarters. QCOM’s shares have lost marginally intraday to close the last trading session at $111.21. However, the stock has gained 113% over the past five years.

QCOM’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

QCOM has a B grade for Value, Sentiment, and Quality. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #13 out of 93 stocks.

Click here for the additional POWR Ratings for Growth, Momentum, and Stability for QCOM.

Photronics, Inc. (PLAB)

PLAB produces and sells photomask goods and services in the US, Taiwan, Korea, Europe, China, and other countries with its subsidiaries. The company offers photomasks to manufacture integrated circuits and flat panel displays (FPDs); and to transfer circuit patterns onto semiconductor wafers, FDP substrates, and other electrical and optical components.

On August 30, 2022, Frank Lee, CEO, said, “We achieved our sixth consecutive quarter of record revenue due to strong end-market demand, favorable pricing dynamics, and outstanding performance by the entire organization.”

PLAB’s total revenues came in at $219.95 million for the third quarter ended July 31, 2022, up 28.9% year-over-year. Moreover, its net income came in at $31.23 million, up 82.9% year-over-year. Also, its EPS came in at $0.51, up 82.1% year-over-year.

PLAB’s revenue is expected to increase 24.2% year-over-year to $824.29 million in 2022. Its EPS is expected to grow 114% year-over-year to $1.84 in 2022. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 15.4% to close the last trading session at $14.83. Moreover, the stock has gained 54.5% over the past five years.

PLAB has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Sentiment, Quality, and Growth. It is ranked #4 in the same industry.

Beyond what is stated above, we’ve also rated PLAB for Stability and Momentum. Get all PLAB ratings here.

QCOM shares were trading at $112.24 per share on Wednesday afternoon, up $1.03 (+0.93%). Year-to-date, QCOM has declined -37.69%, versus a -21.73% 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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