The chip industry is expected to experience substantial growth due to the increased use of specialized chips to power cutting-edge technologies such as Artificial Intelligence (AI), the Internet of Things (IoT), and 5G. Chips are extensively used across the automotive, healthcare, and manufacturing sectors.
Given this backdrop, investors could consider investing in fundamentally strong chip stocks NXP Semiconductors N.V. (NXPI), Amkor Technology, Inc. (AMKR), and Cirrus Logic, Inc. (CRUS).
The global semiconductor industry had a strong start to the year, with sales rising 15.2% year-over-year to $47.60 billion in January. The ever-growing demand for consumer electronics drives the demand for advanced chips that deliver superior performance and meet higher processing needs.
The Semiconductor Industry Association (SIA) expects a 13.1% growth in 2024 to $595.30 billion, fueled by higher demand for AI and automotive chips. Gartner forecasts a 16.8% increase in global semiconductor revenue in 2024, hitting $624 billion, and predicts double-digit growth in the global memory market.
Meanwhile, the growing demand for AI-driven devices and applications in diverse sectors is driving the growth of the artificial intelligence chip industry. The global artificial intelligence chip market is predicted to reach $372.01 billion by 2032, growing at a 38.2% CAGR.
In addition, investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 71% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the three Semiconductor & Wireless Chip picks, beginning with the third choice.
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, and security controllers, as well as semiconductor-based environmental and inertial sensors.
On March 28, 2024, NXPI introduced the S32 CoreRide platform, revolutionizing software-defined vehicle development by integrating processing, networking, power management, and software, boosting scalability, cost-effectiveness, and performance for future cars.
NXPI teamed up with industry leaders to create a user-friendly vehicle integration platform and launched the S32N processor family for adaptable central computing solutions, benefiting car manufacturers.
On March 18, 2024, NXPI announced a collaboration with NVIDIA. NXPI will integrate the TAO Toolkit APIs into its eIQ machine learning development environment, becoming the first semiconductor vendor to integrate NVIDIA TAO APIs directly. This will simplify AI model deployment on NXPI's edge devices and accelerate AI development at the edge.
In terms of the trailing-12-month net income margin, NXPI's 21.07% is 682.4% higher than the 2.69% industry average. Likewise, its 36.40% trailing-12-month EBITDA margin is 304.2% higher than the 9% industry average. Additionally, its 28.22% trailing-12-month EBIT margin is 482.7% higher than the 4.84% industry average.
NXPI's total revenue for the fourth quarter that ended December 31, 2023, rose 3.3% year-over-year to $3.42 billion. The company’s non-GAAP gross profit increased 4.6% from the year-ago value to $2.01 billion.
For the same quarter, its non-GAAP net income attributable to stockholders and non-GAAP net income per share came in at $966 million and $3.71, respectively. In addition, NXPI’s adjusted EBITDA increased 1.9% year-over-year to $1.41 billion.
Street expects NXPI’s revenue for the quarter ended March 31, 2024, to increase marginally year-over-year to $3.13 billion. Its EPS for fiscal 2025 is expected to increase 14.3% year-over-year to $15.79. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 29.1% to close the last trading session at $240.77.
NXPI's POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. It is ranked #12 out of 89 stocks in the Semiconductor & Wireless Chip industry. In total, we rate NXPI on eight different levels. Beyond what we stated above, we also have given NXPI grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the NXPI's ratings here.
Stock #2: Amkor Technology, Inc. (AMKR)
AMKR provides outsourced semiconductor packaging and test services in the U.S., Japan, Europe, the Middle East, Africa, and the Asia Pacific. The company offers comprehensive semiconductor packaging and testing services, including flip-chip scale packages for mobile devices and memory products for data storage.
On January 16, 2024, AMKR and GlobalFoundries announced a strategic partnership in Portugal. The partnership will enhance the European automotive supply chain and expand semiconductor services globally.
AMKR’s Executive VP of Business Units, Kevin Engel, said, “Amkor brings the scale and expertise of its global advanced packaging footprint to this exciting collaboration. Our partnership with GlobalFoundries signals our common goal to stabilize a robust and resilient European automotive supply chain.”
In terms of the trailing-12-month Capex / Sales margin, AMKR’s 11.52% is 397.7% higher than the 2.32% industry average. Its 5.53% trailing-12-month net income margin is 105.5% higher than the 2.69% industry average. Likewise, its 9.43% trailing-12-month Return on Common Equity is 196.4% higher than the industry average of 3.18%.
AMKR’s net sales for the fourth quarter ended December 31, 2023, came in at $1.75 billion. Its gross profit came in at $279.11 million. For the same quarter, its net income attributable to AMKR and net income attributable to AMKR per common share stood at $117.56 million and $0.48, respectively.
In addition, as of December 31, 2023, the company’s long-term debt was $1.07 million, compared to $1.09 billion as of December 31, 2022.
Analysts expect AMKR’s EPS and revenue for the quarter ending September 30, 2024, to increase 32.1% and 2.8% year-over-year to $0.71 and $1.87 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 37.2% to close the last trading session at $30.98.
AMKR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value. It is ranked #10 in the same industry. To see AMKR’s Growth, Stability, Sentiment, and Quality ratings, click here.
Stock #1: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that develops low-power, high-precision mixed-signal processing solutions both domestically and internationally. The company provides audio solutions, including integrated audio components, smart codecs, amplifiers, DSPs, and SoundClear technology for enhanced user experiences.
In terms of the trailing-12-month Return on Common Equity, CRUS’ 10.01% is 214.6% higher than the 3.18% industry average. Likewise, its 10.65% trailing-12-month Return on Total Capital is 334.1% higher than the 2.45% industry average. Moreover, its 0.82x trailing-12-month asset turnover ratio is 33.4% higher than the 0.61x industry average.
For the fiscal third quarter that ended December 30, 2023, CRUS’ net sales rose 4.8% year-over-year to $618.98 million. The company’s non-GAAP operating profit increased 10.6% over the prior-year quarter to $192.23 million. Likewise, its non-GAAP net income and non-GAAP EPS amounted to $160.63 million and $2.89 per share, up 18.3% and 20.4% year-over-year, respectively.
For fiscal 2025, CRUS’ EPS and revenue are expected to increase 3.6% and 3.6% year-over-year to $6.22 and $1.80 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 25.6% to close the last trading session at $91.70.
It’s no surprise that CRUS has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #3 in the Semiconductor & Wireless Chip industry. It has a B grade for Growth, Value, Sentiment, and Quality. Click here to see CRUS’ ratings for Momentum and Stability.
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.
NXPI shares were trading at $239.93 per share on Wednesday morning, down $0.84 (-0.35%). Year-to-date, NXPI has gained 4.91%, versus a 9.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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