While the growing shift towards 5g technology and the widespread adoption of advanced memory chips in industrial applications are expected to drive growth in the chip industry, a looming shortage of skilled labor is expected to impact the industry.

However, I think big-name chip stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Intel Corporation (INTC), and QUALCOMM Incorporated (QCOM) stocks could be worth adding to your watchlists.

The extensive usage of semiconductors in a wide range of end-use applications such as electronics, industrial equipment, automotive, networking and communications, and data processing is the major factor that boosts the growth of the global semiconductor market.

Also, the rising penetration of digital technologies and the rising adoption of various consumer electronics across the globe is fostering the semiconductor market’s growth. The global semiconductor market is poised to grow at a CAGR of 12.3% until 2032.

Additionally, the trend toward miniaturization and increased functionality of electronic devices is driving growth for semiconductor manufacturers. The shift toward 5G technology further fuels the demand for semiconductor capital equipment.

However, the Semiconductor Industry Association recently revealed that despite an anticipated creation of around 115,000 jobs by 2030 within the chipmaking sector, 58% of these positions could potentially remain vacant due to a scarcity of adequately qualified candidates in the US.

“As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment. In addition, an oversupply of chips which is elevating inventories and reducing chip prices, is accelerating the decline of the semiconductor market this year,” said Richard Gordon, Practice Vice President at Gartner.

Let’s discuss the stocks mentioned above in detail:

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally.

TSM pays $1.77 annually as dividends. This translates to a yield of 2.03% at the current market price, compared to the four-year average dividend yield of 2.30%.

TSM’s trailing-12-month gross profit margin of 58.63% is 21.9% higher than the industry average of 48.09%. However, its trailing-12-month asset turnover ratio of 0.47x is 23.8% lower than the industry average of 0.62x.

TSM’s net revenue came in at NT$480.84 billion ($15.68 billion) in the second quarter ended June 30, 2023. Meanwhile, its net income came at NT$181.80 billion ($5.93 billion) and income from operation came in at NT$201.96 billion ($6.58 billion). Also, its EPS stood at NT$7.01.

Analysts expect TSM’s revenue to decrease 11.4% year-over-year to $17.04 billion for the fiscal third quarter ending September 2023. Its EPS is expected to decrease 35.3% year-over-year to $1.16 in the same quarter. However, the company has surpassed EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 13.4% over the past three months and declined 3.9% over the past month to close the last trading session at $96.35.

TSM’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.     

It has a C grade in Value, Stability, and Sentiment. The stock is ranked #26 out of 92 stocks in the Semiconductor & Wireless Chip industry.

Click here to see the additional POWR Ratings for TSM (Growth, Momentum, and Quality).

Intel Corporation (INTC)

INTC designs, develops, manufactures, markets, and sells computing and related products worldwide. It operates through Client Computing Group; Data Center and AI; Network and Edge; Mobileye; Accelerated Computing Systems and Graphics; Intel Foundry Services; and Other segments.

On July 25, 2023, INTC announced a strategic collaboration agreement with Ericsson to utilize Intel’s 18A process and manufacturing technology for Ericsson’s future next-generation optimized 5G infrastructure.

On July 18, INTC announced it had agreed to a term sheet with ASUS, a global technology solution provider, for an agreement to manufacture, sell and support the INTC Next Unit of Compute (NUC) 10th to 13th generations systems product line and to develop future NUC systems designs.

INTC’s trailing-12-month EBITDA margin of 16.25% is 89.1% higher than the industry average of 8.59%. Whereas, its trailing-12-month gross profit margin of 38.27% is 20.6% lower than the industry average of 48.20%.

INTC’s total net revenue declined 15.5% year-over-year to $12.95 billion in the fiscal second quarter that ended July 1, 2023. Non-GAAP net income attributable to INTC and earnings per share decreased 52.5% and 53.6% year-over-year to $547 million and $0.13, respectively. However, INTC’s foundry business revenue rose 307% from the year-ago quarter to $232 million.

Street expects INTC’s revenue for the third quarter (ending September 30, 2023) to decrease 12.3% year-over-year to $13.45 billion. Its EPS is expected to decline 64% year-over-year to $0.21 for the same quarter. However, it has surpassed revenue estimates in three of the trailing four quarters.

The stock has gained 33.3% year-to-date to close the last trading session at $35.23.

The stock has an overall C rating, equating to a Neutral in our proprietary rating system.

INTC also has a C grade for Value, Stability, Momentum, and Quality. It is ranked #55 in the same industry.

Beyond what is stated above, we’ve also rated INTC for Growth and Sentiment. Get all INTC ratings here.

QUALCOMM Incorporated (QCOM)

QCOM engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.

QCOM’s trailing-12-month EBITDA margin of 30.79% is 258.5% higher than the 8.59% industry average. Its trailing-12-month gross profit margin of 56.31% is 16.8% higher than the 48.20% industry average.

On July 14, 2023, QCOM announced a quarterly cash dividend of $0.80 per common share, payable on September 27, 2023.

QCOM pays $3.20 annually as dividends which translates to a yield of 2.68% at the current price. Its four-year average dividend yield is 2.33%.

QCOM’s total revenues came in at $8.45 billion in the fiscal third quarter that ended June 25, 2023, and its net income stood at $1.80 billion. Its EPS amounted to $1.60. Also, its operating income came in at $1.82 billion.

QCOM’s revenue is expected to be $8.51 billion for the fiscal fourth quarter ending September 2023. The company’s EPS for the same quarter is expected to be $1.90.

QCOM has gained 8.6% year-to-date to close its last trading session at $119.34.

It’s no surprise that QCOM has an overall rating of B, which translates to a Buy in our POWR Ratings system.

QCOM also has a B grade for Value and Quality. It is ranked #20 in the same industry.

For additional ratings for QCOM for Momentum, Sentiment, Stability, and Growth, click here.

What To Do Next?

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TSM shares were trading at $93.97 per share on Tuesday morning, down $2.38 (-2.47%). Year-to-date, TSM has gained 27.09%, versus a 17.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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