The Russia-Ukraine crisis, aggressive interest rate hikes, and the conflict between China-Taiwan softened the demand for semiconductors over the past year. The declining sales of consumer electronics due to an economic slowdown have also led to lower demand for semiconductors.
However, the worldwide semiconductor revenue in 2022 increased 1.1% year-over-year to $601.70 billion. With semiconductor chips being widely used across industries and in various types of equipment, the chip industry is expected to witness significant demand in the long run.
Investors’ interest in the chip industry is evident from the SPDR S&P Semiconductor ETF’s (XSD) 22.8% returns over the past three months. Moreover, the global semiconductor market is expected to exceed $1 trillion by 2030, growing at a CAGR of 7%.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices worldwide. It provides complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radio frequency, and embedded memory semiconductors.
In terms of the trailing-12-month gross profit margin, TSM’s 59.56% is 20.3% higher than the 49.53% industry average. Likewise, its 39.90% trailing-12-month ROCE is 739.4% higher than the industry average of 4.75%.
On December 6, 2022, TSM announced that in addition to its first fab in Arizona, which is set to begin production in 2024, it has also started the construction of a second fab, scheduled to begin production in 2026. Upon completion, TSMC Arizona’s two fabs are expected to manufacture over 600,000 wafers annually, with a forecasted end-product value of more than $40 billion.
TSM’s net revenue for the fiscal fourth quarter ended December 31, 2022, increased 42.8% year-over-year to NT$625.53 billion ($20.60 billion). Its income from operations increased 77.8% year-over-year to NT$325.04 billion ($10.70 billion). Its net income increased 78% year-over-year to NT$295.90 billion ($9.75 billion). In addition, its EPS came in at NT$11.41, representing a 78% increase from the prior-year quarter.
Analysts expect TSM’s revenue for the quarter ending March 31, 2023, to increase 2.2% year-over-year to $17.26 billion. Its EPS for fiscal 2024 is expected to grow 23% year-over-year to $7.
It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 38.9% to close the last trading session at $88.40.
TSM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #25 out of 92 stocks. The company has an A grade for Quality.
To see the other ratings of TSM for Growth, Value, Momentum, Stability, and Sentiment, click here.
Photronics, Inc. (PLAB)
PLAB engages in the manufacture and sale of photomask products and services worldwide. The company offers photomasks to manufacture integrated circuits and flat panel displays (FPDs); and to transfer circuit patterns onto semiconductor wafers, FDP substrates, and various electrical and optical components.
In terms of the trailing-12-month EBIT margin, PLAB’s 25.70% is 288% higher than the 6.62% industry average. Likewise, its 14.35% trailing-12-month ROCE is 201.9% higher than the industry average of 4.75%.
PLAB’s revenue for the fiscal fourth quarter ended October 31, 2022, increased 16% year-over-year to $210.27 million. The company’s operating income increased 80.6% year-over-year to $60.54 million. Its net income attributable to PLAB shareholders increased 87.1% year-over-year to $37.06 million. Additionally, its EPS came in at $0.60, representing an increase of 81.8% from the prior-year quarter.
Analysts expect PLAB’s EPS and revenue for the quarter ending January 31, 2022, to increase 15.8% and 9.6% year-over-year to $0.44 and $208 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 17.7% over the past three months to close the last trading session at $17.53.
It is no surprise that PLAB has an overall rating of A, which equates to a Strong Buy. It is ranked #4 in the same industry. In addition, it has an A grade for Value and a B for Sentiment and Quality.
We have also given PLAB grades for Growth, Momentum, and Stability. Get all PLAB ratings here.
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers Pay-TV solutions, managed IPTV services, video metadata and service, app content linking services, advanced metadata, personalized content discovery, natural language voice and insights, and TiVo DVR subscriptions.
In terms of the trailing-12-month gross profit margin, XPER’s 74.91% is 51.3% higher than the 49.53% industry average.
On January 5, 2023, XPER announced a partnership with LG Electronics to integrate DTS:X® immersive audio technology into LG’s latest OLED and Premium LCD TVs. President of Korea at XPER, Jea Yoo, believes that XPER’s subsidiary, DTS, is enabling a new level of audio experience, bringing the quality of sound consumers expect in a theater to the home. She further stated, “We’re excited to help transform the listening experience of LG TV users.”
XPER’s revenue for the third quarter ended September 30, 2022, increased 3.3% year-over-year to $121.64 million. The company’s total current assets increased 21.3% to $336.30 million compared to $277.14 million for the fiscal year ended December 31, 2021.
XPER’s revenue for fiscal 2023 is expected to increase 6.2% year-over-year to $528.28 million. Over the past month, the stock has gained 6.1% to close the last trading session at $9.44.
XPER’s solid prospects are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #3 in the Semiconductor & Wireless Chip industry. In addition, it has a B grade for Growth, Sentiment, and Quality.
Click here to see the other ratings of XPER for Value, Momentum, and Stability.
Want More Great Investing Ideas?
TSM shares were trading at $90.63 per share on Friday afternoon, up $2.23 (+2.52%). Year-to-date, TSM has gained 21.67%, versus a 2.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|TSM||Get Rating||Get Rating||Get Rating|
|PLAB||Get Rating||Get Rating||Get Rating|
|XPER||Get Rating||Get Rating||Get Rating|