Despite the vulnerability to overarching economic fluctuations, the semiconductor industry showcases immense growth potential. The upbeat outlook is primarily ascribed to the increasing chip demand from diverse sectors and supportive government initiatives.
Given this backdrop, fundamentally strong semiconductor stocks NXP Semiconductors N.V. (NXPI), Applied Materials, Inc (AMAT), and Everspin Technologies, Inc. (MRAM) could be attractive investments now.
The Semiconductor Industry Association (SIA) recently unveiled that the global semiconductor industry sales totaled $44 billion in August 2023, indicating a month-over-month increase of 1.9%. The global semiconductor market is anticipated to grow at a CAGR of 12.3% to reach $1.88 trillion by 2032.
The semiconductor industry fuels a multitude of applications, such as AI, AR/VR, the Internet of Things (IoT), autonomous vehicles, EVs, High-Performance Computing (HPC), aerospace, satellite communications, 5G and 6G networks, smart cities, and health tech. The continual need for advancements in semiconductor technologies for these applications significantly contributes to the sector's growth.
Another crucial factor boosting the industry's outlook is the favorable governmental policies and funding initiatives. Previously, the Biden administration outlined plans to designate $238 million through the Defense Department to bolster the semiconductor industry to develop eight innovation hubs across America dedicated to the semiconductor industry.
The allocation is an early disbursement from the approximately $53 billion grant and subsidy pool approved by Congress and the Biden administration to fortify the domestic semiconductor industry.
SEMI’s mid-year forecast anticipates a robust revival in the global sales of total semiconductor manufacturing equipment by 2024. After an estimated dip of 18.6% in 2023, the sales figures are expected to bounce back, reaching a projected $87.40 billion, which follows an all-time industry high of $107.40 billion in 2022.
Given the industry tailwinds, it's time to examine the fundamentals of three stocks to buy in the Semiconductor & Wireless Chip industry, starting with the third in line.
Stock #3: NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, the Netherlands, NXPI offers various semiconductor products. The company’s product portfolio includes microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, security controllers, and semiconductor-based environmental and inertial sensors.
On October 5, NXPI paid its shareholders an interim dividend of $1.014 per ordinary share for the third quarter of 2023. The action is based on the continued and significant strength of NXPI’s capital structure and its board’s confidence in the company’s ability to drive long-term growth and strong cash flow.
NXPI pays an annual dividend of $4.06 per share, translating to a dividend yield of 2.04%. Its four-year average yield is 1.36%. NXPI’s dividend payments have grown at CAGRs of 37.4% and 73.1% over the past three and five years, respectively.
On September 19, NXPI announced measures to bolster its European research and development (R&D) through grants to be provided via the second Important Project of Common European Interest on Microelectronics and Communication Technologies (IPCEI ME/CT), with the final investment decision pending confirmation of the level of public funding.
Specialized NXPI teams across Austria, Germany, the Netherlands, and Romania are set to drive technological innovation in the automotive, industrial, and cybersecurity sectors. NXPI asserts that intensifying European research, development, and manufacturing initiatives is vital. The firm advocates for the successful integration of these key elements to fortify the resilience of the European semiconductor ecosystem.
NXPI’s trailing-12-month net income margin of 21.04% is 896.2% higher than the 2.11% industry average. Likewise, its trailing-12-month ROCE and ROTA of 36.65% and 11.65% are significantly higher than the industry average of 1.20% and 0.02%, respectively.
NXPI’s total revenue for the fiscal second quarter that ended July 2, 2023, stood at $3.30 billion, while its non-GAAP gross profit increased marginally year-over-year to $1.93 billion. The company’s non-GAAP operating income came at $1.16 billion.
Its non-GAAP net income attributable to stockholders and non-GAAP earnings per share stood at $896 million and $3.43, respectively. Furthermore, trailing-12-month adjusted EBITDA (non-GAAP) and trailing-12-month non-GAAP free cash flow increased 9.6% and 11.5% from the year-ago quarter to $5.44 billion and $2.64 billion, respectively.
Street expects NXPI’s EPS for the fiscal year ending December 2023 to come at $13.90, while its revenue for the same period is expected to increase marginally year-over-year to $13.25 billion. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 25.9% year-to-date to close the last trading session at $199.02. Over the past year, it gained 31.2%.
NXPI’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Quality. Within the 90-stock Semiconductor & Wireless Chip industry, it is ranked #17.
Beyond what we stated above, we also have given NXPI grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the NXPI ratings here.
Stock #2: Applied Materials, Inc (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related sectors in the United States, China, Korea, Taiwan, Japan, and Europe. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On September 7, 2023, AMAT announced a quarterly cash dividend of $0.32 per share on the company’s common stock, payable to the shareholders on December 14. It pays $1.28 annually in dividends, which translates to a yield of 0.91% at the current price.
Its four-year average dividend yield is 1.01%. AMAT’s dividend payments have grown at CAGRs of 10.5% and 14.1% over the past three and five years, respectively.
The company distributed $707 million to shareholders, including $439 million in share repurchases and $268 million in dividends.
On July 11, AMAT introduced the Vistara wafer manufacturing platform. The platform is a significant advancement in chipmaking, designed to tackle the changing obstacles in the industry. It provides chipmakers with improved flexibility, intelligence, and sustainability.
AMAT’s trailing-12-month ROCE and ROTA of 47.44% and 21.19% are significantly higher than the industry averages of 1.20% and 0.02%, respectively. Its trailing-12-month asset turnover ratio of 0.94x is 51.7% higher than the industry average of 0.62x.
During the fiscal third quarter that ended July 30, 2023, AMAT’s net sales stood at $6.43 billion, with its net sales from the Applied Global Services segment increasing 3.1% year-over-year to $1.46 billion. Its non-GAAP adjusted gross and operating margins were 46.4% and 28.3%, respectively.
Moreover, non-GAAP adjusted net income and earnings per share came at $1.60 billion and $1.90, respectively. For the same quarter, the company’s cash, cash equivalents, and restricted cash equivalents were $6.13 billion, up 100.4% year-over-year.
In the fourth quarter of fiscal 2023, AMAT expects net sales to be approximately $6.51 billion, plus or minus $400 million, while its non-GAAP adjusted diluted EPS is expected to be between $1.82 and $2.18.
Analysts expect AMAT’s revenue and EPS for the fiscal year (ending October 2023) to increase 2.1% and 2.8% year-over-year to 26.32 billion and $7.92, respectively. In addition, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
AMAT’s shares have gained 69.8% over the past year to close the last trading session at $140.29. Over the past six months, it gained 22.6%.
It’s no surprise that AMAT has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B in Quality. It is ranked #11 within the same industry.
Click here for additional AMAT ratings for Growth, Value, Stability, and Sentiment.
Stock #1: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells Magnetoresistive Random Access Memory (MRAM) products. The company offers Toggle MRAM, spin-transfer torque MRAM, and tunnel magnetoresistance sensor products. Additionally, it provides foundry services for MRAM products.
MRAM’s trailing-12-month net income margin of 11.65% is 451.6% higher than the industry average of 2.11%. Its trailing-12-month ROCE and ROTA of 18.07% and 12.52% are significantly higher than the industry averages of 1.20% and 0.02%, respectively.
For the fiscal second quarter that ended June 30, 2023, MRAM’s total revenue increased 7.1% year-over-year to $15.75 million. Its adjusted EBITDA grew 66.7% from the year-ago quarter to $5.43 million. Also, the company’s net income and comprehensive income rose 132.5% year-over-year to $3.89 million, while net income per common share stood at $0.18, up 125% from the prior year quarter.
For the six months that ended June 30, 2023, MRAM’s net cash provided by operating activities stood at $7.53 million, up 124.8% year-over-year. As of June 30, 2023, its total current liabilities came at $5.99 million, compared to $10.88 million as of December 31, 2022.
The consensus revenue estimate of $62.35 million for the fiscal year ending December 2023 indicates a 3.9% year-over-year improvement. Its EPS is expected to come at $0.48. It surpassed the EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 86.7% year-to-date to close the last trading session at $10.38. Over the past six months, it gained 56.8%.
MRAM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Value and Quality. It is ranked #2 within the Semiconductor & Wireless Chip industry.
In addition to what we have highlighted above, to access the additional MRAM ratings (Growth, Stability, and Momentum), click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AMAT shares were trading at $138.15 per share on Monday morning, down $2.14 (-1.53%). Year-to-date, AMAT has gained 42.87%, versus a 13.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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