The demand for semiconductors is soaring, propelled by the economic recovery and rapid digital transformation. The high demand has helped 10 of the world’s biggest chip manufacturing companies generate a record, aggregate $22.75 billion in revenues in the first quarter of 2021.

The foundries have been raising their wafer prices and adjusting their product mixes to ensure profitability. As a result, the chip giants’ profit margins are increasing significantly.

Given the industry’s promising growth prospects, Wall Street analysts expect semiconductor stocks Semtech Corporation (SMTC) and Alpha and Omega Semiconductor Limited (AOSL) to rally more than 35% in the near term.

Click here to checkout our Semiconductor Industry Report for 2021

Semtech Corporation (SMTC)

SMTC in Camarillo, Calif., is a leading global manufacturer and supplier of analog and mixed-signal semiconductor products and advanced algorithms. The company’s products include Signal Integrity, Protection, Wireless and Sensing, and Power and High-Reliability.

On July 22, SMTC announced a collaboration  with the Swiss Post to provide a universal postal service to Swiss citizens and businesses. The strong results from the Swiss Post collaboration make Semtech’s LoRa devices the de facto wireless platform of IoT and reflect SMTC’s technological prowess.

Also in July,  SMTC announced the availability of its EClamp8052P device, which combines common-mode noise filtering and high-performance, low-capacitance ESD protection into a single compact package. This package should be highly desirable considering the current challenges many customers face in securing a  supply of stand-alone filter devices.

SMTC’s net sales increased 28.4% year-over-year to $170.37 million in its  fiscal first quarter ended May 2. Its operating income grew 77.4% from its  year-ago value to $27.97 million, while its net income improved 144% year-over-year to $23.50 million over the period. The company’s EPS increased 140% year-over-year to $0.36.

A $725.41 million consensus revenue estimate  for the current year indicates a 21.9% improvement from the last year. In addition, analysts expect the company’s EPS to come in at $2.43 in the current year, indicating a 38.9% rise year-over-year. Furthermore , SMTC surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive.

Of the eight Wall Street analysts that rated SMTC, seven rated it Buy while one rated it Hold. The $85.71  median price target indicates a potential 37.4% upside  from its last closing price of $62.36. The 12-month price targets range from a low of $71.00 to a high of $96.00.

Alpha and Omega Semiconductor Limited (AOSL)

AOSL designs, develops and supplies power semiconductor products for computing, consumer electronics, communication, and industrial applications. The company’s product portfolio consists primarily of two categories: power discretes and power integrated circuits (ICs).

On June 8, AOSL introduced the AOZ8S303BLS-24 and AOZ8S305BLS-24, a series of single-channel Transient Voltage Suppressor (TVS). These products “will not only contribute to reducing the ESD failure rate but also reducing the failure of Short-to-VBUS in our partners’ and customers’ electronic products,” according to Michael K. S. Ng, Sr. Marketing Manager of the TVS product line at AOSL. Thus, these products are expected to be in demand given the broad application of Type-C connectors in electronics devices.

On May 18, a new series of Smart Power Stages (SPS) was announced, targeting multiphase VR regulators that power high-performance GPU and CPU in desktop Add-In Graphics Cards (AICs), gaming laptops, servers, and data storage, artificial intelligence, and networking equipment. This product should enhance AOSL’s product portfolio substantially.

AOSL’s revenue increased 58.4% year-over-year to $169.21 million in its  fiscal third quarter ended March 31. Its gross profit stood at $52.69 million, up 134.6% from the same period last year. Its operating income grew 306.5% from its year-ago value to $17.80 million. The company’s EPS increased 323.1% year-over-year to $0.58.

Analysts expect AOSL’s revenues to increase 14.6% year-over-year to $173.67 million in the current quarter, ending September 2021. A $0.78 consensus EPS estimate for the current quarter indicates a 41.8% rise from the same period last year. In addition, the company has a notable earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Shares of AOSL have gained 124% over the past year and 8.3% year-to-date.

The $39.00 median price target indicates a potential 52.3% upside from its last closing price of $25.60. The 12-month price targets range from a low of $26.00 to a high of $52.00.

Click here to checkout our Semiconductor Industry Report for 2021

SMTC shares were trading at $62.81 per share on Thursday afternoon, up $0.45 (+0.72%). Year-to-date, SMTC has declined -12.87%, versus a 18.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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