The semiconductor industry is set for significant expansion thanks to heightened chip utilization in cutting-edge technologies, automotive, and healthcare domains. Artificial intelligence (AI), the Internet of Things (IoT), and 5G networks all need specialized chips.
Given this backdrop, chip stocks Trio-Tech International (TRT), ASE Technology Holding Co., Ltd. (ASX), and United Microelectronics Corporation (UMC), which are showing strength in the market, could be worth investing in.
The global semiconductor market began the year strong, witnessing a 15.2% year-over-year increase in worldwide sales, totaling $47.60 billion in January. The Semiconductor Industry Association (SIA) predicts a 13.1% growth in global chip sales for 2024, reaching $595.3 billion, driven by increasing demand for artificial intelligence (AI) and automotive chips.
According to Gartner, global semiconductor revenue is projected to grow by 16.8% in 2024, reaching $624 billion, with the worldwide memory market expected to experience double-digit growth.
Notably, the increasing demand for AI-powered devices and applications across various industries 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, exhibiting a 38.2% CAGR.
Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 78.4% 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: Trio-Tech International (TRT)
TRT and its subsidiaries offer the semiconductor industry manufacturing, testing, and distribution services. The company operates through four segments: Manufacturing, Testing Services, Distribution, and Real Estate.
In terms of the trailing-12-month EBITDA margin, TRT’s 15.81% is 73.5% higher than the 9.11% industry average. Its 16.66% trailing-12-month levered FCF margin is 80.3% higher than the 9.24% industry average. Likewise, the stock’s 0.89x trailing-12-month asset turnover ratio is 45.2% higher than the 0.61x industry average.
For the fiscal second quarter that ended December 31, 2023, TRT’s revenues came in at $12.20 million. Likewise, the company’s net income attributable to TRT and EPS came in at $507 thousand and $0.12, respectively. In addition, as of December 31, 2023, the company’s cash and cash equivalents stood at $10.97 million, compared to $7.58 million as of June 30, 2023.
Over the past year, TRT’s stock has gained 36.4% to close the last trading session at $6.29. This compares to the SPDR S&P 500 ETF Trust’s (SPY) 31.7% returns over the same time frame.
TRT’s POWR Ratings reflect strong prospects. Its overall rating is 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.
It has an A grade for Value and Momentum and a B for Sentiment. It is ranked #15 out of 91 stocks in the Semiconductor & Wireless Chip industry. We rate TRT on eight different levels. In addition to what we stated above, we have also given TRT grades for Growth, Stability, and Quality. Get all the TRT ratings here.
Stock #2: ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX, and its subsidiaries provide semiconductor packaging, testing, and electronic manufacturing services in the United States, Taiwan, Asia, Europe, and internationally.
In terms of the trailing-12-month net income margin, ASX’s 5.45% is 107.5% higher than the 2.63% industry average. Likewise, its 4.76% trailing-12-month Return on Total Assets is 274% higher than the industry average of 1.27%. Its 10.59% trailing-12-month Return on Common Equity is 256.9% higher than the industry average of 2.97%.
ASX’s total net revenues for the fiscal fourth quarter that ended December 31, 2023, increased 4.2% year-over-year to NT$160.58 billion ($5.04 billion). The company’s operating income grew 3.6% year-over-year to NT$11.81 billion ($370.36 million). Its net income attributable to ASX and EPS came in at NT$9.39 billion (294.47 million) and NT$2.13, up 7% and 6.5% over the prior-year quarter, respectively.
Street expects ASX’s EPS for the quarter ending March 31, 2024, to increase 11.4% year-over-year to $0.10. Its revenue for the quarter ending June 30, 2024, is expected to increase 1.1% year-over-year to $4.40 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 47.7% (versus the SPY’s 20.6%) to close the last trading session at $11.12.
ASX’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Momentum and is ranked #12 in the same industry. To see ASX’s Growth, Stability, Sentiment, and Quality ratings, click here.
Stock #1: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It serves fabless design companies and integrated device manufacturers.
On January 25, 2024, UMC and Intel announced a collaboration to develop a 12-nanometer process platform, which will expand capacity and global supply chain resilience for high-growth markets.
UMC’s Jason Wang, Co-President, predicted that the collaboration with Intel on the 12 nm process would accelerate their development roadmap, broaden their market reach, and leverage the strengths of both companies for customer benefit.
In terms of the trailing-12-month Capex/Sales margin, UMC’s 41.11% is significantly higher than the 2.32% industry average. Its 29.41% trailing-12-month net income margin is 943.3% higher than the 2.63% industry average. Likewise, its 17.57% trailing-12-month Return on Common Equity is 492.1% higher than the industry average of 2.97%.
For the fiscal fourth quarter that ended December 31, 2023, UMC’s operating revenues and gross profit stood at $1.79 billion and $580 million, respectively. For the same quarter, net income attributable to shareholders of the parent and earnings per ADS stood at $430 million and $0.17, respectively.
Analysts expect UMC’s EPS and revenue for the quarter ending September 30, 2024, to increase 2.4% and 11.5% year-over-year to $0.20 and $1.96 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing three quarters. Over the past six months, the stock has gained 13% to close the last trading session at $7.99.
It’s no surprise that UMC has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #11 in the Semiconductor & Wireless Chip industry. It has a B grade for Value, Momentum, and Quality. Click here to see UMC’s Growth, Stability, and Sentiment ratings.
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TRT shares were trading at $6.36 per share on Tuesday afternoon, up $0.07 (+1.11%). Year-to-date, TRT has gained 25.44%, versus a 9.99% 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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