The chip industry is expected to witness substantial growth due to increasing demand for electronic devices across various sectors, such as consumer electronics, automotive, telecom, and healthcare. Also, the surge of emerging technologies, including artificial intelligence (AI), the Internet of Things (IoT), and 5G networks is fueling demand for specialized chips.
Given the industry’s rosy prospects, it could be wise to invest in fundamentally strong chip stocks Trio-Tech International (TRT), ASE Technology Holding Co., Ltd. (ASX), and Applied Materials, Inc. (AMAT) for potential gains.
After a challenging year in 2023, semiconductor sales are expected to rebound in 2024, driven by resurgent market demand and government incentives worldwide. This year, global chip sales are predicted to total $588 billion, about 13% better than 2023 and 2.5% more than 2022’s record industry revenues of $574 billion.
In terms of end markets, both PC and smartphone sales are anticipated to rise 4% in 2024, after last year’s respective declines of 14% and 3.5%.
As per SEMI’s quarterly World Fab Forecast report, the worldwide semiconductor capacity is set to surge 6.4% in 2024 to surpass the 30 million wafers per month (wpm) mark for the first time after increasing 5.5% to 29.6 wpm in 2023.
This year’s growth will be driven by capacity growth in leading-edge logic and foundry, applications including generative AI and high-performance computing (HPC), and the recovery in end-demand for chips.
According to the Precedence Research report, the global semiconductor market is projected to total $1.13 trillion by 2033, growing at a noteworthy CAGR of 7.6% during the forecast period (2024-2033).
Besides, the Chips and Science Act of 2022 allocates $280 billion to boost U.S. semiconductor manufacturing capacity. It also aims to accelerate research and development (R&D) and promote the commercialization of advanced technologies, like quantum computing, AI, clean energy, and nanotechnology.
Moreover, investors’ interest in semiconductor stocks is evident from the VanEck Vectors Semiconductor ETF (SMH) 50.4% returns over the past six months.
Given these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: Trio-Tech International (TRT)
TRT engages in the manufacturing, testing, and distribution services for the semiconductor industry. The company operates in four segments: Manufacturing; Testing Services; Distribution; and Real Estate. It develops and manufactures test equipment used in front-end and back-end manufacturing processes of semiconductors.
In terms of trailing-12-month EV/Sales, TRT is trading at 0.33x, 89.3% lower than the industry average of 3.04x. Likewise, the stock’s trailing-12-month EV/EBITDA multiple of 2.06 is 88.5% lower than the industry average of 17.94. Further, the stock’s trailing-12-month Price/Sales of 0.62x is 78.6% lower than the industry average of 2.92x.
TRT’s trailing-12-month EBITDA margin of 15.81% is 74.1% higher than the respective industry average of 9.08%. Also, the stock’s trailing-12-month levered FCF margin of 16.66% is 85.6% higher than the industry average of 8.97%.
For the fiscal 2024 second quarter that ended December 31, 2023, TRT reported revenue of $12.20 million. Its net income attributable to TRT and EPS came in at $507 thousand and $0.12 for the quarter, respectively. The company’s cash and cash equivalents were $10.97 million as of December 31, 2023, compared to $7.58 million as of June 30, 2023.
Shares of TRT have surged 9.6% over the past month and 41.4% over the past year to close the last trading session at $6.25.
TRT’s bright prospects are reflected in its POWR Ratings. 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, each weighted to an optimal degree.
The stock has an A grade for Momentum and Value. It has a B grade for Sentiment. Within the Semiconductor & Wireless Chip industry, TRT is ranked #15 out of 91 stocks.
Click here to access additional ratings of TRT for Quality, Growth, and Stability.
Stock #2: ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX offers semiconductors packaging & testing and electronic manufacturing services internationally. The company develops, constructs, sells, leases, and manages real estate properties; produces substrates; offers information software, equipment leasing, investment advisory, and warehousing management services.
On October 3, 2023, ASX launched its Integrated Design Ecosystemtm (IDE), a collaborative design toolset optimized to boost advanced package architecture across its VIPackTM platform systematically. It enables silicon package design efficiencies that reduce cycle time by half and set new standards for quality and user experience.
ASX’s trailing-12-month EBIT margin and net income margin of 6.93% and 5.45% are 45.6% and 107.3% higher than the respective industry averages of 4.76% and 2.63%. Similarly, the stock’s trailing-12-month levered FCF margin of 9.34% is 4.1% higher than the industry average of 8.97%.
ASX’s net revenue for the fourth quarter that ended December 31, 2023, increased 4.2% from the prior quarter to NT$160.58 billion ($5.09 billion), and its gross profit grew 3.4% quarter-over-quarter to NT$25.76 billion ($816.65 million). The company’s operating income of NT$11.81 billion ($374.55 million) indicates growth of 3.6% from the previous quarter.
Further, the company’s net income attributable to shareholders of the parent and EPS came in at NT$9.39 billion ($297.74 million) and NT$2.13, up 7% and 6.5% quarter-on-quarter, respectively.
Analysts expect ASX’s revenue and EPS for the second quarter (ending June 2024) to increase 2.7% and 20.5% year-over-year to $4.46 billion and $1.14, respectively. Moreover, the company has topped the consensus EPS estimates in three of the trailing four quarters.
ASX’s shares have gained 39.3% over the past six months and 46.8% over the past year to close the last trading session at $10.98.
ASX’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Value and Sentiment. Within the same industry, ASX is ranked #11 among 90 stocks.
In addition to the POWR Ratings we’ve stated above, we also have ASX ratings for Quality, Growth, and Stability. Get all ASX ratings here.
Stock #1: Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
On March 11, 2024, AMAT announced that its board of directors approved a 25% increase in the quarterly cash dividend from $0.32 to $0.40 per share. The dividend is payable on June 13, 2024, to shareholders of record as of May 23, 2024.
AMAT pays an annual dividend of $1.60, which translates to a yield of 0.80% at the current share price. Its four-year average dividend yield is 0.94%. Moreover, the company’s dividend payouts have increased at a CAGR of 13.3% over the past three years. AMAT has raised its dividends for six consecutive years.
On February 26, AMAT announced a portfolio of products and solutions created to cater to the patterning requirements of chips in the “angstrom era.” The company introduced innovative new etch systems, CVD patterning films and metrology solutions to enhance chips made using EUV and High-NA EUV lithography.
AMAT is also working with leading-edge logic chipmakers on a growing number of Sculpta applications.
AMAT’s trailing-12-month EBITDA margin and net income margin of 30.72% and 27.03% are significantly higher than the respective industry averages of 9.08% and 2.63%. Furthermore, the stock’s trailing-12-month levered FCF margin of 20.34% is 126.7% higher than the industry average of 8.97%.
AMAT reported net sales of $6.71 billion for the first quarter that ended January 28, 2024. The company’s non-GAAP gross profit grew 1.9% from the year-ago value to $3.21 billion. Its non-GAAP net income and non-GAAP EPS came in at $1.78 billion and $2.13, indicating growth of 3.4% and 4.9% from the prior year’s quarter, respectively.
In addition, the company’s non-GAAP free cash flow increased 5.7% year-over-year to $2.10 billion. Its cash and cash equivalents were $6.85 billion as of January 28, 2024, versus $6.13 billion as of October 29, 2023.
Street expects AMAT’s revenue for the third quarter (ending July 2024) to increase 2.2% year-over-year to $6.56 billion, and its EPS is estimated to increase 3.1% year-over-year to $1.96 for the same period. Moreover, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters, which is impressive.
AMAT’s stock has gained 38.9% over the past six months and 66.8% over the past year to close the last trading session at $200.75.
AMAT’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
AMAT has an A grade for Sentiment and Momentum. The stock also has a B grade for Quality. It is ranked #7 among the 90 stocks in the Semiconductor & Wireless Chip industry.
Click here to access additional AMAT ratings for Value, Growth, and Stability.
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AMAT shares fell $0.05 (-0.02%) in premarket trading Friday. Year-to-date, AMAT has gained 24.05%, versus a 8.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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