With the growing demand for varied applications across end-use sectors, the semiconductor industry is poised for a strong rebound after facing turmoil in 2023. Further, with the incorporation of cutting-edge technologies like IoT devices, Artificial Intelligence (AI), and Virtual Reality (VR), the industry is well-positioned for significant expansion.
Therefore, investors could consider buying fundamentally strong chip stocks Skyworks Solutions, Inc. (SWKS), Taiwan Semiconductor Manufacturing Company Limited (TSM), and NXP Semiconductors N.V. (NXPI) for potential profits.
As per the data compiled by the Semiconductor Industry Association (SIA), global semiconductor sales in January 2024 totaled $47.6 billion, representing the largest year-to-year market growth since May 2022. This reflects an increase of 15.2% compared to January 2023 sales of $41.3 billion.
“The global semiconductor market started the new year strong, with worldwide sales increasing year-to-year by the largest percentage since May 2022,” said SIA’s president and CEO, John Neuffer. “Market growth is projected to continue over the remainder of the year, with annual sales forecast to increase by double-digits in 2024 compared to 2023.”
The global semiconductor market attained a value of $544.78 billion in 2023. The market is further expected to result in a market volume of $1.14 trillion by 2033, exhibiting growth at a CAGR of 7.6% during the forecast period (2024-2033).
During the forecast period, North America and Europe are expected to grow rapidly compared to other economies due to robust telecom and automotive industries. Further, the increasing demand for consumer electronics and the rising prevalence of IoT devices, AI, and VR&AR will likely drive the market growth.
The AI chip market is emerging as one of the most notable segments, with sales prediction for specialized chips optimized for generative AI to reach more than $50 billion in 2024. Also, it is predicted that the total AI chip sales in the year will amount to 11% of the predicted global chip market of $576 billion.
The global AI chip market is projected to expand at a CAGR of 28.8% during the forecast period (2024-2032), reaching $191.24 billion by 2032. The increasing investment in AI-related startups, rising demand for smart homes, and surging development of smart cities will contribute to market demand.
Moreover, investors’ interest in semiconductor stocks is evident from the SPDR S&P Semiconductor ETF's (XSD) 15% 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: Skyworks Solutions, Inc. (SWKS)
SWKS engages in the design, development, manufacturing, and marketing of proprietary semiconductor products worldwide. The company’s product portfolio includes amplifiers, antenna tuners, attenuators, automotive tuners, and digital radios. Its products are used in aerospace, automotive, broadband, and cellular infrastructure markets.
During the first quarter of 2024, SWKS secured multiple design wins in infrastructure, which includes optical transport products with a major operator in India and timing devices for 5G small cells for private networks. It expanded the wi-fi design win pipeline through Cisco’s enterprise access point, Linksys' tri-band mesh router, and TP-Link’s tri-band gaming router.
Further, the company delivered next-generation smart energy solutions with Google’s nest temperature sensor and Itron’s residential gas meter and increased design win momentum in segments like automotive, which includes telematics, infotainment systems, and onboard chargers across the leading OEMs.
On October 4, 2023, SWKS introduced the Si469xx Automotive Digital Radio Coprocessor Family for HD Radio™, DAB/DAB+, DRM, CDR. It is designed to function with Skyworks’ Si479xx family of Hybrid Software Defined Radio (SDR) tuners to achieve a complete digital radio receiver.
The Si469xx family enhances SWKS’ ability to address the requirements of the Future IVI system and offers customers the best-in-class capability, flexibility, and affordability.
SWKS’s trailing-12-month EBIT margin and net income margin of 22.83% and 19.48% are significantly higher than the respective industry averages of 4.84% and 2.74%. Also, the stock’s trailing-12-month levered FCF margin of 27.14% is 201.2% higher than the industry average of 9.01%.
For the fiscal 2024 first quarter that ended December 29, 2023, SWKS reported revenue of $1.20 billion, and its non-GAAP gross profit came in at $557 million. It reported non-GAAP net income of $317 million, or $1.97 per share for the quarter, respectively.
In addition, the company’s non-GAAP free cash flow increased 6% year-over-year to $752.70 million. Its cash, cash equivalents, and marketable securities were $1.05 billion as of December 29, 2023, compared to $738.50 million as of September 29, 2023.
For the second quarter of 2024, SWKS expects its revenue to be $1.02 billion to $1.07 billion. The company expects non-GAAP EPS of $1.52 at the mid-point of the revenue range.
For the fiscal year (ending September 2025), SWKS’ revenue is expected to grow 7.9% year-over-year to $4.82 billion, while its EPS is expected to increase 20.5% year-over-year to $8.34 for the same period, respectively. Moreover, the company has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of SWKS have surged 8.4% over the past six months to close the last trading session at $104.02.
SWKS’ 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 a B grade for Quality and Value. Within the Semiconductor & Wireless Chip industry, SWKS is ranked #16 out of 89 stocks.
Click here to access additional ratings of SWKS for Sentiment, Growth, Momentum, and Stability.
Stock #2: Taiwan Semiconductor Manufacturing Company Limited (TSM)
Based in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. The company’s products are applied in high-performance computing, smartphones, automotive, and digital consumer electronics.
On February 24, 2024, TSM organized an opening ceremony for its wholly-owned subsidiary, Japan Advanced Semiconductor Manufacturing, Inc., in Kumamoto Prefecture, Japan, marking a key milestone for JASM. TSM and minority investors Sony Semiconductor Solutions, DENSO, and Toyota announced further investment into JASM to build a second fab.
With both fabs, JASM’s Kumamoto site is anticipated to offer a total monthly production capacity of more than 100,000 12-inch wafers. This reflects TSM’s commitment to green manufacturing, expanding its operations in wide segments and regions and opening new avenues for the future.
TSM's trailing-12-month gross profit margin of 54.36% is 11.8% higher than the industry average of 48.64%. Similarly, the stock’s trailing-12-month net income margin of 38.79% is significantly higher than the industry average of 2.74%.
For the fourth quarter that ended December 31, 2023, TSM’s net revenue increased 14.4% from the prior quarter to NTD 625.53 billion ($19.62 billion), and its gross profit grew 11.8% to NTD 331.77 billion ($10.41 billion). The company’s income from operations was NTD 260.20 billion ($8.16 billion), up 14.1% from the previous quarter.
Further, the company’s net income and EPS came in at NTD 238.31 billion ($7.48 billion) and NTD 9.21, up 13% and 13.1% from the prior quarter, respectively.
According to the company’s business outlook for the first quarter of 2024, TSM’s revenue is expected to be between $18 billion and $18.80 billion.
Analysts expect TSM’s revenue and EPS for the first quarter (ending March 2024) to increase 9.2% and marginally year-over-year to $18.15 billion and $1.32, respectively. Moreover, the company has topped the consensus EPS estimates in each of the trailing four quarters.
TSM’s shares have gained 64.7% over the past six months and 53.1% over the past year to close the last trading session at $138.84.
TSM’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 Quality and a B for Sentiment. Within the same industry, TSM is ranked #15 among 89 stocks.
In addition to the POWR Ratings we’ve stated above, we also have TSM ratings for Growth, Value, and Stability. Get all TSM ratings here.
Stock #1: NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, Netherlands, NXPI provides various semiconductor products internationally. Its product portfolio comprises microcontrollers, application processors, communication processors, wireless connectivity solutions, analog and interface devices, radio frequency power amplifiers, and security controllers.
On March 18, 2024, NXPI and NVIDIA Corp. (NVDA) collaborated to enable NVIDIA’s trained AI models to be deployed on NXPI’s broad portfolio of edge processing devices with the eIQ® machine learning development environment. The enablement allows developers to accelerate development in the increasingly competitive world of AI.
With this collaboration, NXPI became the first chip vendor to integrate NVIDIA TAO Toolkit APIs within an AI enablement to ease developers.
On January 11, NXPI and Honeywell International Inc. (HON) signed a Memorandum of Understanding (MoU) to help optimize how commercial buildings sense and securely control energy consumption.
The collaboration aims to facilitate buildings' ability to operate more intelligently by integrating NXPI’s applications processors into Honeywell's building management systems (BMS). The companies can deliver smart energy solutions using AI/ML and data analytics to enhance building autonomy, driving energy efficiency while guiding service technicians.
NXPI’s trailing-12-month gross profit margin and net income margins of 56.97% and 21.07% are higher than the respective industry averages of 48.64% and 2.74%. Likewise, its trailing-12-month ROCE of 34.76% is considerably higher than the 2.91% industry average.
NXPI’s total revenue increased 3.3% year-over-year to $3.42 billion for the fourth quarter that ended December 31, 2023. The company’s non-GAAP gross profit grew 4.6% from the year-ago value to $2.01 billion. 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, the company’s adjusted EBITDA increased 1.9% year-over-year to $1.41 billion. And its non-GAAP free cash flow increased 14.1% year-over-year to $962 million.
As per the guidance for the first quarter of 2024, NXPI expects total revenue of $3.02 - $3.22 billion. Further, it expects its non-GAAP gross profit to range between $1.74 billion and $1.89 billion and its non-GAAP operating income to range from $994 million to $1.12 billion. Also, the company’s non-GAAP EPS is set at $2.97 - $3.38 for the quarter.
Street expects NXPI’s revenue for the fiscal year (ending December 2025) to increase 8.5% year-over-year to $14.18 billion, and its EPS is estimated to grow 14.3% year-over-year to $15.79 for the same period. Furthermore, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters, which is impressive.
NXPI’s stock has gained 22.6% over the past six months and 37.2% over the past year to close the last trading session at $239.06.
NXPI’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.
NXPI has a B grade for Quality. It is ranked #14 out of 89 stocks in the Semiconductor & Wireless Chip industry.
Click here to access additional NXPI ratings for Value, Growth, Stability, Sentiment, and Momentum.
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TSM shares rose $0.42 (+0.30%) in premarket trading Wednesday. Year-to-date, TSM has gained 33.93%, versus a 9.49% 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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