Amid the ever-changing terrain of today's technology-driven world, the semiconductor industry is a pivotal cornerstone, underpinning innovations and advancements across diverse sectors. So, let's delve into quality chip stocks Intel Corporation (INTC), Trio-Tech International (TRT), and United Microelectronics Corporation (UMC) that promise a profitable future.
The global semiconductor market is driven by widespread use in various applications, including electronics, industrial equipment, automotive, networking, communications, and data processing. The rapid adoption of emerging technologies like AI and IoT is also driving the demand for customized chips, driving the industry’s growth.
According to Precedence Research, the global semiconductor market is expected to reach $1.88 trillion by 2032, growing at a CAGR of 12.3%.
Gartner predicts AI chip revenue in the semiconductor industry to reach $53.4 billion this year, growing 20.9% from the last year. This growth can be primarily attributed to the demand for high-performance GPUs and optimized semiconductor devices needed to run generative AI platforms.
The firm anticipates continued double-digit growth in AI semiconductor revenue, with a 25.6% increase in 2024, reaching $67.1 billion. By 2027, AI chip revenue is expected to double, reaching $119.4 billion.
Furthermore, the commitment to bolster the semiconductor industry is echoed in the CHIPS and Science Act, which allocates a substantial $52.70 billion for research, development, manufacturing, and workforce training, focusing on manufacturing incentives and international ICT security.
Companies have disclosed $166 billion in semiconductor and electronics manufacturing investments within a year. Since the start of the Biden-Harris administration, commitments for these investments in the United States have increased to over $231 billion.
In light of these encouraging trends, let's look at the fundamentals of the three Semiconductor & Wireless Chip stocks to buy, beginning with number 3.
Stock #3: Intel Corporation (INTC)
INTC develops, designs, manufactures, promotes, and distributes computing and associated goods worldwide. It operates in the Client Computing Group; Data Center and AI; Network and Edge; Mobileye; Accelerated Computing Systems and Graphics; Intel Foundry Services; and other segments.
INTC’s trailing-12-month CAPEX/Sales of 49.04% is significantly higher than the industry average of 2.41%. Its trailing-12-month EBITDA margin of 16.25% is higher than the 9.04% industry average.
On October 3, 2023, INTC announced its intent to separate its Programmable Solutions Group (PSG) operations into a standalone business. This move aims to enhance PSG’s ability to accelerate its growth and compete effectively in the diverse FPGA industry, serving markets like data centers, communications, industrial, automotive, aerospace, and defense.
On September 29, INTC introduced its Intel 4 technology, featuring extreme ultraviolet (EUV) technology for high-volume manufacturing in Europe. This milestone sets the stage for INTC’s upcoming Intel Core Ultra processors (Meteor Lake), enabling AI PCs, and the 2024 release of Intel Xeon processors on the Intel 3 process node.
The company pays an annual dividend of $0.50, which translates to a yield of 1.40% on the prevailing price level. It has a four-year average dividend yield of 3.12%. The company has consecutively raised its dividend payouts for the past eight years.
INTC’s total net revenue stood at $12.95 billion in the fiscal second quarter that ended July 1, 2023. Non-GAAP net income attributable to INTC and earnings per share amounted to $547 million and $0.13.
As of July 1, 2023, INTC reported total assets of $185.63 billion, marking an increase from the $182.10 billion recorded as of December 31, 2022. Furthermore, its total current liabilities decreased to $27.18 billion from $32.16 billion as of December 31, 2022.
In the fiscal third quarter that ended September 30, 2023, INTC’s revenue is estimated to be approximately $12.9-13.9 billion, with non-GAAP gross margin at 43% and non-GAAP EPS of $0.20.
Analysts expect INTC’s EPS and revenue to rise 222.6% and 2.3% year-over-year to $0.32 and $14.36 billion in the fiscal fourth quarter ending December. Moreover, it surpassed EPS estimates in three of the four trailing quarters.
INTC’s shares have gained 33.9% over the past year to close the last trading session at $34.92.
INTC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
INTC has a B grade for Momentum. Within the Semiconductor & Wireless Chip industry, it is ranked #57 out of 91 stocks.
Click here for the additional POWR Ratings for Value, Growth, Stability, and Quality for INTC.
Stock #2: Trio-Tech International (TRT)
TRT offers manufacturing, testing, and distribution services to the semiconductor industry. It operates through four segments: Manufacturing; Testing Services; Distribution; and Real Estate.
TRT’s trailing-12-month net income margin of 3.57% is 76.1% higher than the industry average of 2.03%. Its trailing-12-month EBIT and EBITDA margins of 5.17% and 16.77% are higher than the 4.59% and 9.04% industry averages.
During the fiscal year that ended June 30, TRT’s manufacturing revenues rose 2.2% year-over-year to $13.83 million. Its testing services revenues increased 18.8% from the previous year to $23.13 million. Net income attributable to TRT stood at $2.40 million and $0.57 per share.
As the company enters fiscal year 2024, TRT has a near-record backlog and anticipates a gradual recovery in semiconductor equipment demand. Distribution revenue is expected to increase as demand for value-added products grows. The company is actively working to diversify its business lines to reduce reliance on a single industry and customer concentration.
The stock has returned 31.4% over the past year to close the last trading session at $6.44.
TRT’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.
TRT has an A grade for Value and Momentum. Within the same industry, it is ranked #18.
To access TRT’s additional POWR Ratings for Quality, Stability, and Sentiment, click here.
Stock #1: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry sectors.
UMC’s trailing-12-month net income margin of 31.60% is significantly higher than the industry average of 2.03%. Its trailing-12-month EBIT and EBITDA margins of 32.97% and 48.39% are higher than the 4.59% and 9.04% industry averages.
With a four-year average of 4.38%, UMC pays an annual dividend of $0.58, which translates to a yield of 7.78% on the current market price.
In the second quarter, which ended June 30, 2023, UMC’s operating revenue amounted to $1.81 billion, while its gross profit came in at $651 million. Its operating expenses declined 14.7% from the prior-year quarter to $184 million. The company’s attributable net income and earnings per ADS amounted to $511 million and $0.20.
Street expects UMC’s revenue to increase 13.5% year-over-year to $7.81 billion in 2024. Its EPS is expected to come in at $0.73 next year.
Over the past year, the stock has gained 21.4% to close the last trading session at $7.43. It has returned 6.6% over the past month.
UMC’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.
It has an A grade for Momentum and a B for Value and Quality. It is ranked #7 in the same industry.
In addition to the POWR Ratings highlighted above, one can access additional UMC ratings for Growth, Stability and Sentiment here.
What To Do Next?
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INTC shares were trading at $34.55 per share on Monday morning, down $0.37 (-1.06%). Year-to-date, INTC has gained 33.34%, versus a 11.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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