The pandemic has compelled everybody to work from home and depend on technology for day-to-day needs. The increased usage of electronics has amounted to higher production of gadgets, thus boosting the demand of semiconductors. Hence, the semiconductor and wireless chip industry is likely to see a brighter future.
The versatile utility of semiconductors has helped the industry soar during the COVID-19 crisis. Widespread application of semiconductors in the computing industry is likely to take it to new levels. The shortage in the processors, panels, and chipsets will only add to this demand.
As more people spend time indoors, interactions and meetings will largely take place online. This is boosting the need for hi-speed, automated communication devices. Thus, more users want their devices to be powered by 5G for better network connectivity, which is great news for 5G chipmakers. According to Allied Market Research, the global 5G Chipset market is projected to expand to $22.9 billion by 2026, at a CAGR of 48.7%.
Besides computing and 5G demand, growth of other disruptive technologies like AI and IoT should also act as a catalyst for the semiconductor industry. As a result, Taiwan Semiconductor Manufacturing Company Ltd. (TSM), Qualcomm Incorporated (QCOM), Broadcom Inc. (AVGO) and Applied Materials, Inc. (AMAT) are positioned to benefit significantly this year and beyond.
Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
TSM is a world-class manufacturer and seller of semiconductors and integrated circuits across North America, Europe, Japan, China, and South Korea. The company operates in the communications, computer, industrial, consumer, and standard segments. TSM also offers customer service, account management, and engineering services.
Yesterday, Phoenix City authorities entered into an agreement with TSM to set up a $12 billion chip manufacturing plant. Authorities believe that TSM’s advanced semiconductor fabrication campus could create 1,900 new jobs over the next five years. The production is set to begin in 2024.
During the third quarter that ended September 2020, TSM’s revenue climbed 29.2% year-over-year to $12.1 billion, led by demand for 5G smartphones, HPC, and IoT-related applications. During the quarter, shipments of 5-nanometer garnered 8% of total wafer revenue, while 7- nanometer and 16-nanometer accounted for 35% and 18% respectively. The company’s earnings per ADR unit for the quarter was $0.90 per share.
Analysts expect revenue for the quarter ending December 2020 to be $12.3 billion, indicating an increase of 18.6% year-over-year. Meanwhile, EPS is likely to grow 27.4% to $0.93.
On a year-to-date basis, TSM has gained 66.3% to close yesterday’s trading session at $96.61. During the past six months, the stock surged 90.1%.
How does TSM stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
You can’t ask for better. The stock is also ranked #1 out of 86 stocks in the Semiconductor & Wireless Chip industry.
QUALCOMM Incorporated (QCOM)
QCOM is a global leader in the design, manufacture, and sales of chipsets with operations across the United States, China, South Korea, and Taiwan. Apart from semiconductors, QCOM also manufactures software & services and intellectual property mainly for wireless technology.
QCOM received permission to sell 4G chips to Huawei from the United States. This implies that the company has received an exemption to US trade restrictions. QCOM and various other semiconductor suppliers stopped selling to Huawei in September, after the trade restrictions were put in place.
QCOM’s revenue for the fourth quarter that ended September 2020 surged 73% year-over-year to $8.3 billion, driven by strength in 5G demand in the company’s licensing and product businesses. Meanwhile, the company’s EPS was $2.58, compared to $0.42 posted in the same period last year. According to QCOM’s CEO, Steve Mollenkopf, the company is well positioned for growth in 2021, and beyond. QCOM should continue to drive growth and scale across its RF front-end, Automotive, and IoT adjacencies.
The street predicts revenue for the quarter ending December 2020 to rise 62.7% year-over-year to $8.2 billion. Meanwhile, consensus estimate indicates that EPS will surge 110.1% to $2.08.
QCOM ended yesterday’s trading session at $147.53, soaring 67.2% on a year-to-date basis. The stock is trading 3.9% below its 52-week high at $153.33. Over the past six months, the stock has rallied 88.9%.
It’s no surprise that QCOM is rated a “Strong Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade, Buy and Hold Grade, and Industry Rank and a “B” in Peer Grade. In the 86-stock Semiconductor & Wireless Chip industry, it is ranked #3.
Broadcom Inc. (AVGO)
AVGO supplies semiconductor chipsets to a variety of industries including data center, broadband, wireless, networking hardware, storage solutions, and industrial markets. The chipmaker operates through three segments: Semiconductor Solutions, Intellectual Property Licensing, and Infrastructure Software.
Earlier this month, AVGO announced the world’s first automotive IEEE 802.3ch Multigigabit PHYs and Multilayer Switches with MACsec Support. Using AVGO’s MACsec technology from high-speed networking products, the BCM8989X and BCM8957X can be configured to empower connected cars with high bandwidth connectivity, advanced security, and time-sensitive networking.
During the third quarter ending August 2020, AVGO’s net revenue climbed 5.5% year-to-date, due to the demand from cloud and telecom customers, which outweighed the expected reset in wireless. Meanwhile, EPS for the period slipped to $1.45, compared to $1.71 EPS for the same period last year. Free cash flow at the end of the quarter was over $3 billion, up 33% year-over-year.
The consensus estimate for revenue for the quarter that ended October 2020 is $6.4 billion, up 11.2% year-over-year. Meanwhile, EPS for the period is expected to rise 15.8% to $6.24.
On a year-to-date basis, AVGO has rallied 21.6% to end at $384.33 yesterday, 2.5% below the 52-week high of $393.89. Over the past six months, the stock has soared 41.3%.
AVGO’s promising outlook is reflected in its POWR Ratings system. It is rated a “Strong Buy” with an “A” in Trade Grade, Industry Rank, and Buy & Hold Grade, and a “B” in Peer Grade. Out of 86 stocks in the Semiconductor & Wireless Chip industry, it’s ranked #4.
(Broadcom is one of the 9 stocks currently held in the Reitmeister Total Return portfolio. Learn more here.)
Applied Materials, Inc. (AMAT)
AMAT manufactures software, equipment, and services for the semiconductor, display, and allied industries. Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets are the three segments through which the company operates. AMAT operates in the United States, Taiwan, Japan, Southeast Asia, China, Korea, and Europe.
AMAT, in association with BE Semiconductor, is developing an end-to-end proven equipment solution for die-based hybrid bonding. This is a new chip-to-chip interconnect technology that allows heterogeneous chip and subsystem designs for applications such as high-performance computing, AI, and 5G.
During the fourth quarter that ended October 2020, AMAT’s revenue jumped 24.8% to $4.7 billion, on the back of a 58% rise in Foundry, Logic and other segments. Meanwhile, EPS rose 64% year-over-year to $1.23 for the quarter.
The street expects revenue for the first quarter to grow 18.3% year-over-year to $4.9 billion. Analysts also expect EPS to grow at 15.8% per annum over the next five years.
On a year-to-date basis, AMAT surged 26.6% to close yesterday’s session at $77.25 yesterday, quite close to its 52-week high of $77.51. During the past six months, the stock has risen 39.3%.
AMAT’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Within the Semiconductor & Wireless Chip industry, it’s ranked #6 out of 86 stocks.
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TSM shares were trading at $95.94 per share on Friday afternoon, down $0.67 (-0.69%). Year-to-date, TSM has gained 68.03%, versus a 12.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
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