The semiconductor industry is expected to make a solid comeback despite the major slowdown in global semiconductor sales in the year’s second half and the global supply chain disruption. The increasing need for Integrated Circuits (ICs) amid continued digital transformation is expected to drive the chip industry’s growth.
Furthermore, the CHIPS and Science Act has allotted $280 billion in funding over the next ten years to boost domestic semiconductor manufacturing capacity.
In addition to developing new regional high-tech centers and a larger, more diverse STEM workforce, the Act also aspires to commercialize cutting-edge technologies like quantum computing, artificial intelligence (AI), clean energy, and nanotechnology.
The chip demand is set to rise exponentially over the coming years due to the increasing chip usage across various industries. The overall growth in the global semiconductor market is estimated to be primarily driven by the automotive, data storage, and wireless industries. According to a report by SpendEdge, the semiconductor market is expected to increase spending by nearly $171.69 billion over the next five years, growing at a CAGR of 6.81%.
Investors’ interest in semiconductor stocks is evident from the iShares Semiconductor ETF’s (SOXX) 12.7% gains over the past month. Given the industry’s long-term growth prospects, adding fundamentally strong and high-quality chip stocks Taiwan Semiconductor (TSM), Broadcom (AVGO), and STMicroelectronics (STM) to your portfolio this year could be wise.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. Its products are utilized in the markets for mobile devices, high-performance computing, automotive electronics, and the internet of things.
On October 27, TSM announced the launch of the Open Innovation Platform (OIP) 3DFabric Alliance at the 2022 Open Innovation Platform Ecosystem Forum. The new TSMC 3DFabric™ Alliance is the sixth OIP Alliance for TSM and the first of its type in the semiconductor industry.
This collaboration will aid customers in the rapid implementation of silicon and system-level advancements and develop next-generation HPC and mobile applications employing TSMC’s 3DFabric technology.
TSM’s net revenue for the fiscal 2022 third quarter ended September 30, 2022, increased 47.9% year-over-year to $20.13 billion. Its income from operations grew 81.5% from the year-ago value to $10.24 billion. Net income came in at $9.27 billion, a 79.6% increase year-over-year, while EPS grew 79.8% from the year-ago value to $0.36.
TSM’s annual dividend of $1.87 per share yields 2.36% on the current price. Its four-year average dividend yield is 2.52%. The company’s dividend payments have grown at a 5.3% CAGR over the past three months and 10.2% CAGR over the past five years.
Analysts expect TSM’s revenue for the fiscal year 2022 (ending December 2022) to increase 27.6% from the prior year to $73.24 billion. The company’s EPS for the current year is expected to increase 55.8% year-over-year to $6.42. TSM has surpassed the consensus EPS in each of the trailing four quarters.
Over the past month, the stock has gained 30.7% to close the last trading session at $79.22.
TSM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates 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 Quality and a B for Growth and Sentiment. Within the Semiconductor & Wireless Chip industry, it is ranked #14 of 92 stocks.
Beyond what we stated above, we also have TSM’s ratings for Value, Stability, and Momentum. Get all TSM ratings here.
Broadcom Inc. (AVGO)
AVGO develops and distributes semiconductor and infrastructure software solutions. It operates through two segments, Semiconductor Solutions; and Infrastructure Software. AVGO’s mainframe software provides DevOps, AIOps, Security, and Data Management Systems solutions.
On October 13, AVGO announced the expansion of its silicon, software, and hardware storage connection products, which result from multi-generational investments and have improved performance, capabilities, and power. These products are designed to help hyper-scale data centers manage and maintain the storage connectivity required to provide scale video storage.
The magnitude of investment and dedication to this market by AVGO will allow for end-to-end power-optimized performance for video offload, resulting in a significant increase in power and simplifying interoperability and ecosystem support.
On October 11, AVGO announced the release of the industry’s first open end-to-end networking solution tailored for Remote Direct Memory Access (RDMA) over Converged Ethernet. It will make RoCE deployment in data centers easier by leveraging an end-to-end open congestion control algorithm to achieve the industry’s lowest latency at scale.
According to Jas Tremblay, vice president and general manager of Broadcom’s Data Center Solutions Group, “RDMA has become a must-have technology in the data center for Ethernet NIC and switches. Broadcom has diligently worked with Arista, a networking industry leader, to expand the hardware ecosystem.”
For the fiscal 2022 third quarter ended July 31, 2022, AVGO’s non-GAAP net revenue increased 24.9% year-over-year to $8.46 billion. The company’s adjusted EBITDA came in at $5.38 billion, up 30.4% year-over-year. Its non-GAAP net income grew 35.8% year-over-year to $4.24 billion, while its non-GAAP EPS came in at $9.73, a 39.8% increase from the year-ago value.
In addition, the company’s cash flow from operations increased 24.9% year-over-year to $4.42 billion.
AVGO has raised its dividends for ten consecutive years. It pays a $16.40 per share dividend annually, which translates to a 3.14% yield on the current price. Its four-year average dividend yield is 3.23%. AVGO’s dividend payments have grown at CAGRs of 15.7% and 32.1% over the past three and five years, respectively.
For the fiscal year 2022, ending October 31, 2022, analysts expect revenue to increase 21% from the previous year to $33.22 billion. The company’s EPS for the ongoing year is expected to increase 33.9% year-over-year to $37.50. The company has an impressive earnings surprise history since it surpassed the consensus EPS in each of the trailing four quarters.
Shares of AVGO have gained 12.9% over the past month to close the last trading session at $522.21.
AVGO’s POWR Ratings reflect its strong outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The stock has an A grade for Quality and a B for Growth and Sentiment. Within the Semiconductor & Wireless Chip industry, AVGO is ranked #7 of 92 stocks.
To see additional POWR ratings for Value, Stability, and Momentum for AVGO, click here.
STMicroelectronics N.V. (STM)
STM is a Switzerland-based semiconductor company that creates, develops, produces, and markets semiconductor products globally. Its segments include Automotive and Discrete Group (ADG); Analog, MEMS and Sensors Group (AMS); and Microcontrollers and Digital ICs Group (MDG).
On November 28, STM announced the completion of EMVCo1 certification for its STPay-Topaz-Bio biometric payment card platform. The accomplishment makes STPay-Topaz-Bio and the underlying secure hardware; the first EMVCo-certified platform to include a secure biometric element and operating system (OS).
Laurent Degauque, Marketing Director, Secure Microcontroller Division at STM, said, “Card issuers everywhere can now take advantage of our certified STPay platform to deliver new products to market quickly, protected by biometric authentication that is extremely robust as well as easy to use.”
On November 9, 2022, STM disclosed that its ST54K IC managed the security and control for contactless NFC communication in the recently released Google Pixel 7 smartphone. STM’s product integrates NFC control and a certified Secure Element in a single chip, saving space and streamlining handset design.
For the fiscal 2022 third quarter ended October 1, 2022, STM’s net revenue increased 35.2% year-over-year to $4.32 billion, and its gross profit was $2.06 billion, up 54.8% year-over-year. Its operating income grew 110.3% year-over-year to $1.27 billion. Net income came in at $1.10 billion, a 131.9% increase from the year-ago value. EPS grew 127.5% from the year-ago value to $1.16.
The company pays a $0.24 per share dividend annually, which translates to a 0.65% yield on the current price. Its four-year average dividend yield is 0.83%.
Analysts expect STM’s revenue for the fiscal year ending December 31, 2022, to increase 25.2% year-over-year to $15.97 billion. The company’s EPS for the current year is expected to increase 84.5% from the prior year to $3.99. STM has surpassed its consensus EPS in each of the trailing four quarters.
Over the past month, the stock has gained 18.5% to close the last trading session at $37.14.
STM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Quality, Value, Growth, and Sentiment. Within the Semiconductor & Wireless Chip industry, it is ranked #3 of 92 stocks.
Click here to see additional ratings of STM for Stability and Momentum.
TSM shares were trading at $79.27 per share on Tuesday afternoon, up $0.05 (+0.06%). Year-to-date, TSM has declined -33.29%, versus a -16.00% 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. More…
