Nanotechnology is going to disrupt many industries. There is no denying it will lead to many innovations in different areas. Nano means extremely small, 1,000 times smaller than micro, to the scale of atoms and molecules that are not visible to a naked eye. One nanometer is a billionth of a meter. To give you an idea of how small it is, a human hair has an average diameter of 80,000 nanometers.
Nanotechnology is the study of building materials and devices at the molecular level. At this scale, the physical and chemical properties of a substance change. You can change the strength, conductivity, reactivity, and color of materials at the nanoscale. For instance, a carbon nanotube can give you 100x the strength of steel for just 1/6th of the weight. Moreover, nanotech devices can work under extreme weather conditions such as electromagnetic noise, radiation, high vacuum, and high temperature.
The advancements and applications of nanotech are unfathomable. This is its advantage as well as disadvantage. Some argue that the lack of understanding of how nanoparticles will react with the environment makes them a potential threat to human health, society, and the environment. Hence, the commercialization of nanotechnology is limited to some verticals like semiconductors, chemicals, medicine, and energy.
The potential of nanotechnology in manufacturing
Speaking of commercialization of nanotechnology in manufacturing, it has the potential to increase efficiency by building smaller, cheaper, lighter, and higher performance products that consume less energy and need fewer raw materials. Allied Market Research expects the global nanotechnology market to rise at a CAGR of 10.5% to $2.2 billion between 2019 and 2025.
Nanotechnology is still untapped. But three companies are leading this tech at various levels, from material science to device manufacturing to equipment. They are Taiwan Semiconductor Manufacturing Company Ltd. (TSM), Thermo Fisher Scientific Inc (TMO), and Cabot Microelectronics Corporation (CCMP). These companies are commercializing nanotechnology efficiently while delivering value to shareholders.
Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
The first name that pops up in the mention of nano is TSM. This semiconductor manufacturing company has gained its glory by overtaking Intel (INTC) in the race of nanometers. TSM developed the world’s first 7-nanometer (nm) chip, which powered Apple’s (AAPL) iPhone X. It is the world’s largest semiconductor manufacturer with a market cap of over $400 billion and annual revenue of over $34.5 billion.
The move to artificial intelligence, 5G, and autonomous cars is driving the demand for low-power, high-performance chips. This is driving the move towards smaller nodes. TSM is ahead in the node technology. It is currently producing chips on a 5-nm node and is developing a 2-nm node.
Its technological advancements are attracting makers of smartphones, PCs, automotive, internet-of-things (IoT) devices, data center servers, and communication equipment. Its largest customers are Apple and Advanced Micro Devices (AMD).
TSM recently released its third-quarter earnings, where its revenue surged 29%, and EPS surged almost 36% on a year-over-year basis. The majority of this growth came from its 5nm and 7nm chips. TSM is also the key beneficiary of the iPhone 12 and Sony’s (SNE)PlayStation 5, and Microsoft’s (MSFT) Scarlett game console.
TSM stock is already riding the bulls, trading at a 20% premium to its average price target of $69.37. It surged 63% last year and 49% so far this year. The stock is priced to perfection, trading at 10.7 times its sales per share. Still, TSM is rated a “Strong Buy” in the POWR Ratings. This is because it has strong growth potential. The street expects its revenue to surge at a CAGR of 19.7% in the coming five years.
TSM holds an “A” in Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. It is also the #1 ranked stock in the 86-stock Semiconductor & Wireless Chip industry.
Thermo Fisher Scientific Inc (TMO)
While TSM manufactures nanochips for electronic devices, TMO manufactures electron microscopes that can zoom in the image of a single atom that is not visible to a naked eye. Anyone who is working on developing nanotechnology or packaging nanodevices needs these electron microscopes. With a market cap of over $185 billion and annual revenue of over $26 billion, TMO is one of the leading providers of scientific instrumentation.
The size of the semiconductor is shrinking, and its structure is becoming complex exposing it to electrical faults that may not be visible. TMO’s semiconductor solutions help detect electrical faults, thereby improving quality and process control and increasing manufacturing yield of 3D NAND, logic, DRAM, analog, and display devices.
Beyond semiconductors, TMO also caters to life sciences, diagnostics, and laboratory products. Its second-quarter revenue surged 10% year-over-year on the back of 52% growth in Life Sciences Solutions, which offers COVID-19-related products and services.
The pandemic has made investors bullish on TMO. Hence, its stock is trading near its average price target of $465.33. It surged 45.5% last year and 44% so far this year. The stock is trading at 7 times its sales per share. The street’s five-year revenue CAGR expectation of 13.4% and the solid price momentum helped TMO earn a “Strong Buy” in the POWR Ratings. It holds an “A” in Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. It is also the #1 ranked stock in the 58-stock Medical – Diagnostics/Research industry.
Cabot Microelectronics Corporation (CCMP)
CCMP is a lesser-known company with a market cap of $4.4 billion and annual revenue of $1 billion. CCMP works at the very first stage of nanotechnology. CCMP supplies high-quality critical materials to semiconductors and the oil and gas industry. Its materials help its clients make advanced technologies and increase performance.
In the second quarter, CCMP saw strong demand for its chemical mechanical planarization (CMP) slurries. They are used to polish the surface of a silicon wafer on which semiconductors are fabricated. Its solutions help semiconductor companies manufacture smaller, complex, and high-performance chips. CCMP also supplies drag-reducing agents (DRA), which are used to reduce turbulence in a pipe, petroleum pipes in particular, and increase pipeline capacity.
In the second quarter, CCMP’s revenue surged 1% year-over-year as strength in the semiconductor industry was offset by weakness in the oil and gas industry. The COVID-19 pandemic induced work-from-home culture, thereby increasing demand for electronic devices. At the same time, the pandemic also induced travel restrictions which grounded planes and reduced oil demand. Lower oil demand reduced the transmission of petroleum products through pipelines.
The pandemic has impacted CCMP’s short-term growth. The stock gained just 6% year-to-date as compared to 53% last year. It is currently trading at a 3.3% discount to its average price target of $160.5. The stock is valued at 4 times its sales per share, which is attractive for a stock for which the street forecasts a five-year revenue CAGR of 13%.
CCMP is rated a Buy in the POWR Ratings. It holds straight “A” in Trade Grade and Industry Rank, and a “B” in Buy & Hold Grade. It is also the #40 ranked stock in the Semiconductor & Wireless Chip industry.
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TSM shares were trading at $87.43 per share on Monday afternoon, up $0.73 (+0.84%). Year-to-date, TSM has gained 53.12%, versus a 7.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Puja Tayal
Puja is a seasoned writer working with financial publishing companies like Motley Fool Canada and Market Realist. With over 13 years of experience in the field of fundamental research, she brings a blend of comprehensive, well-researched insights into her articles. More...
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