Following the supply headwinds, the semiconductor industry has been witnessing a fall in demand due to the uncertain macroeconomic environment and weakening consumer demand. However, the demand for semiconductors is expected to grow in the long run, with their increasing usage in consumer electronics, automobiles, healthcare equipment, and weapons systems.
Moreover, earlier this year, President Joe Biden signed the Chips and Science Act, which aims to strengthen U.S. competitiveness with China by investing billions of dollars in domestic semiconductor manufacturing and scientific research. The Biden administration has allocated $52 billion for chip manufacturing to boost the domestic semiconductor industry.
According to Allied Market Research, the global semiconductor market is projected to expand at a CAGR of 6.2% to reach $1.03 trillion by 2031. Investors’ interest in the semiconductor industry is evident from the SPDR S&P Semiconductor ETF’s (XSD) 7.6% returns over the past three months.
Given this backdrop, it could be wise to buy fundamentally strong chip stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Broadcom Inc. (AVGO), and Xperi Inc. (XPER).
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices worldwide. It provides complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radio frequency, and embedded memory semiconductors.
TSM’s net revenue for the fiscal third quarter ended September 30, 2022, increased 47.9% year-over-year to NT$613.14 billion ($19.95 billion). Its income from operations increased 81.5% year-over-year to NT$310.32 billion ($10.10 billion).
Its net income increased 79.6% year-over-year to NT$280.97 billion ($9.14 billion). In addition, its EPS came in at $10.83, representing a 79.8% increase from the prior-year quarter.
Analysts expect TSM’s EPS and revenue for the quarter ending December 31, 2022, to increase 53.1% and 30.8% year-over-year to $1.76 and $20.73 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 1.4% to close the last trading session at $74.89.
TSM’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 #9 out of 92 stocks. The company has an A grade for Sentiment and Quality and a B for Growth.
To see the other ratings of TSM for Value, Momentum, and Stability, click here.
Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products worldwide. The company operates in two segments, Semiconductor Solutions, and Infrastructure Software.
On August 22, 2022, AVGO and Tencent Holdings Ltd. announced a strategic partnership to accelerate the adoption of high bandwidth co-packaged optics network switches for cloud infrastructure.
AVGO’s VP and General Manager of the Optical Systems Division, Near Margalit, expects to continue to innovate and extend the company’s market leadership position with Tencent as AVGO migrates to 51.2-Tbps switch CPOs and next-generation 200G/lane PAM-4 applications.
AVGO’s non-GAAP net revenue for the fiscal fourth quarter ended October 30, 2022, increased 20.6% year-over-year to $8.93 billion. The company’s non-GAAP net income increased 29.8% year-over-year to $4.54 billion. Its adjusted EBITDA increased 25.8% year-over-year to $5.72 billion. Additionally, its non-GAAP EPS came in at $10.45, representing a 33.8% increase from the year-ago period.
AVGO’s EPS and revenue for the quarter ending January 31, 2023, are expected to increase 21.4% and 15.5% year-over-year to $10.18 and $8.90 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 11.3% to close the last trading session at $552.43.
AVGO’s positive outlook is reflected in its POWR Ratings. The company has an overall rating of B, which equates to a Buy. It is ranked #13 in the same industry. In addition, it has an A grade for Quality.
Click here to see the additional ratings of AVGO for Growth, Value, Momentum, Stability, and Sentiment.
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers Pay-TV solutions, managed IPTV services, video metadata and service, app content linking services, advanced metadata, personalized content discovery, natural language voice and insights, and TiVo DVR subscriptions.
On September 12, 2022, DTS, Inc., a wholly owned subsidiary of XPER, joined Sense Media Group to launch "InCabin" , a series of global events dedicated to the in-cabin space.
Adi Capata, DTS’s SVP of Engineering, believes that sensing technology is critical to the in-cabin future, with significant implications for consumers, OEMs, and technology providers. The potential of its applications is numerous, from vehicle safety to health care and wellness, to immersive entertainment.
XPER’s revenue for the third quarter ended September 30, 2022, increased 3.3% year-over-year to $121.64 million. The company’s total current assets increased 21.3% to $336.30 million compared to $277.14 million for the fiscal year ended December 31, 2021.
XPER’s revenue for fiscal 2023 is expected to increase 7.7% year-over-year to $535.32 million. Over the past month, the stock has fallen 19.1% to close the last trading session at $8.35.
XPER’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #3 out of 92 stocks in the Semiconductor & Wireless Chip industry. In addition, it has a B grade for Growth, Sentiment, and Quality.
Click here to see the other ratings of XPER for Value, Momentum, and Stability.
TSM shares were trading at $74.31 per share on Tuesday afternoon, down $0.58 (-0.77%). Year-to-date, TSM has declined -37.18%, versus a -18.39% 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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