Although the chip industry faced a host of challenges due to market volatility and macroeconomic headwinds, the industry has solid long term growth potential given the growing usage of chips. To that end, investors could benefit from fundamentally strong chip stocks ASE Technology Holding Co., Ltd. (ASX), Cohu, Inc. (COHU), and Veeco Instruments Inc. (VECO).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the chip industry is well-positioned for growth.
The Semiconductor Industry Association (SIA) reported a decline of 21.3% year-over-year in semiconductor sales in the first quarter of 2023. However, sales during March pipped that of the previous month, bringing optimism to investors.
SIA President and CEO John Neuffer said, “Semiconductor sales continued to slip during the first quarter of 2023 due to market cyclicality and macroeconomic headwinds, but month-to-month sales were up in March for the first time in nearly a year, providing optimism for a rebound in the months ahead.”
Semiconductor chips are in high demand due to rapid technological advancements. The emergence of artificial intelligence (AI), the Internet of Things (IoT), the growing adoption of electric vehicles, and the rising consumption of consumer electronics drive the need for semiconductor chips.
Semiconductor chips are witnessing strong demand from various sectors such as healthcare, automotive, consumer electronics, artificial intelligence, etc. The semiconductor market is projected to grow at a CAGR of 12.2% to $1.38 trillion by 2029.
Additionally, investors’ interest in semiconductor stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 38.4% returns year-to-date.
Considering these factors, it could be wise to buy the featured stocks. Let’s take a closer look at their fundamentals.
ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX provides semiconductors packaging and testing, and electronic manufacturing services worldwide. It develops, constructs, sells, leases, and manages real estate properties, produces substrates, offers information software, equipment leasing, investment advisory, and carries out various other operations and services.
In terms of the trailing-12-month EBIT margin, ASX’s 11.10% is 142.5% higher than the industry average of 4.58%. Its 20.97% trailing-12-month Return on Common Equity is significantly higher than the industry average of 0.71%. Likewise, its 10.75% trailing-12-month CAPEX/Sales is 377.3% higher than the 2.25% industry average.
ASX’s total net revenues for the fiscal first quarter ended March 31, 2023, came in at NT$130.89 billion ($4.25 billion). The company’s net cash generated from operating activities increased 13.2% over the year-ago period to NT$30.76 billion ($997.83 billion). In addition, its EPS came in at NT$1.30.
ASX’s EPS for the quarter ending December 31, 2023, is expected to increase 10.1% year-over-year to $0.25. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 24.8% to close the last trading session at $7.56.
ASX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Semiconductor & Wireless Chip industry, it is ranked #23 out of 91 stocks. The stock has an A grade for Value and Momentum and a B for Sentiment.
Click here to access all the ratings of ASX for Growth, Stability, and Quality.
Cohu, Inc. (COHU)
COHU provides semiconductor test equipment and services in China, the United States, Taiwan, Malaysia, the Philippines, and internationally.
The company supplies semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, thermal sub-systems, and semiconductor automated test equipment for semiconductor manufacturers and test subcontractors.
On January 30, 2023, COHU announced that it acquired MCT Worldwide, LLC, a leading semiconductor test handler automation equipment provider.
COHU’s President and CEO, Luis Müller, believes that the acquisition provides an opportunity to expand the company’s addressable market with film-frame test and laser marking equipment. COHU expects to develop new test automation solutions for advanced packages in panel tests by drawing upon the combined technologies and expertise.
In terms of the trailing-12-month EBIT margin, COHU’s 14.93% is 226.1% higher than the 4.58% industry average. Its 11.45% trailing-12-month net income margin is 379.7% higher than the 2.39% industry average. Likewise, its 9.96% trailing-12-month Return on Common Equity is considerably higher than the industry average of 0.71%.
COHU’s long-term debt for the first quarter ended April 1, 2023, declined 48.1% to $37.72 million, compared to $72.66 million for the fiscal year ended December 31, 2022. Its non-GAAP net EPS and net income came in at $0.56 and $26.95 million, respectively.
COHU’s EPS and revenue for fiscal 2024 are expected to increase 28.4% and 10.2% year-over-year to $2.58 and $766.49 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 32.4% to close the last trading session at $37.09.
COHU’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #22 in the same industry. It has an A grade for Momentum and a B for Value. We have also given COHU grades for Growth, Stability, Sentiment, and Quality. Get all COHU ratings here.
Veeco Instruments Inc. (VECO)
VECO develops, manufactures, sells, and supports semiconductor and thin film process equipment primarily to make electronic devices worldwide.
The company offers laser annealing, ion beam deposition and etch, metal organic chemical vapor deposition, single wafer wet processing and surface preparation, molecular beam epitaxy, and atomic layer deposition, and other deposition systems, as well as packaging lithography equipment.
In terms of trailing-12-month EBIT margin, VECO’s 8.39% is 83.3% higher than the industry average of 4.58%. Its 25.24% trailing-12-month net income margin is 957.4% higher than the 2.39% industry average. Likewise, its 11.38% trailing-12-month levered FCF margin is 62.4% higher than the industry average of 7.01%.
For the fiscal first quarter ended March 31, 2023, VECO’s total assets came in at $1.17 billion, compared to $1.13 billion for the fiscal year ended December 31, 2022. The company’s non-GAAP operating income came in at $20.44 million. Additionally, its non-GAAP net income and EPS came in at $16.87 million and $0.30, respectively.
VECO’s revenue for the quarter ending December 31, 2023, is expected to increase 16.2% year-over-year to $178.65 million. Its EPS is expected to increase 15.6% year-over-year to $1.52. It has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 25.8% to close the last trading session at $23.30.
VECO’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #21 in the Semiconductor & Wireless Chip industry. It has an A grade for Momentum and a B for Value.
In total, we rate VECO on eight different levels. Beyond what we stated above, we have also given VECO grades for Growth, Stability, Sentiment, and Quality. Get all VECO ratings here.
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ASX shares were trading at $7.80 per share on Friday afternoon, up $0.24 (+3.17%). Year-to-date, ASX has gained 24.40%, versus a 10.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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