The semiconductor industry plays a prominent role in the dynamic landscape of technology and innovation, providing the foundations for the devices and technologies that have become indispensable in our daily routines.
In this context, let us explore quality semiconductor stocks Broadcom Inc. (AVGO), Diodes Incorporated (DIOD), and Everspin Technologies, Inc. (MRAM), which could be solid additions to your portfolios. These companies also boast robust profit margins.
The semiconductor industry plays a pivotal role in enabling emerging technologies such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT). Moreover, the rising penetration of digital technologies and the adoption of various consumer electronics across the globe are fostering the semiconductor market's growth.
The global semiconductor market is anticipated to grow at a CAGR of 12.3% to reach $1.88 trillion by 2032.
In addition, increasing demand for memory-intensive applications in smartphones and emerging technologies are bolstering the memory chip industry. There is also an increase in the need for semiconductor memory chips with high storage capabilities to resolve the data center complexities in different organizations.
The global memory chip market was valued at approximately $181.50 billion last year. According to projections by IMARC Group, the market is poised to reach $460.90 billion by 2028, growing at a CAGR of 16.2%.
Furthermore, the increasing adoption of smart city initiatives, connected devices and the growing demand for connectivity in rural and remote areas are boosting the Wireless Chipset market.
Also, the increasing adoption of AI-powered devices and applications, along with the implementation of AI algorithms and machine learning techniques in smartphones, smart home devices, wearables, and industrial sensors, is expected to further fuel the market.
The Wireless Chipset market is estimated to grow at a CAGR of 4.4% until 2027.
In light of these encouraging trends, let's delve into the compelling reasons why these three best Semiconductor & Wireless Chip stocks should be on every investor's radar, beginning with number 3.
Stock #3: Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices with a focus 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.
AVGO’s trailing-12-month EBIT and EBITDA margins of 45.70% and 57.34% are favorably higher than the industry averages of 4.91% and 9.17%.
On October 2, 2023, AVGO unveiled its cutting-edge 5nm 200G/lane optical PAM-4 DSP PHY, named Sian™ BCM85822, at ECOC 2023. This innovation provides 200G/lane serial optical interfaces, enabling cost-effective production of 800G and 1.6T pluggable modules to meet the rising bandwidth and low power demands of hyperscale data centers.
On September 26, AVGO’s division, Symantec, announced a partnership with Google Cloud to integrate generative AI (gen AI) into the Symantec Security platform. The partnership aims to bridge the cybersecurity talent gap by making security tools more accessible and user-friendly for less experienced staff.
Symantec will utilize Google Cloud’s AI tools to enable natural language interfaces and provide more comprehensive and user-friendly threat analyses.
Moreover, on September 29, AVGO paid a quarterly dividend of $4.60 per share to its shareholders. While its four-year average dividend yield is 3.11%, the company’s annual dividend of $8.40 translates to a 2.22% yield on the current share price.
Also, it has a record of 12 years of consecutive dividend growth. Its dividend payouts have grown at CAGRs of 12.3% and 21.3% over the past three and five years, respectively.
AVGO expects its fourth quarter revenue of approximately $9.27 billion and adjusted EBITDA to be approximately 65% of projected revenue.
AVGO’s net revenue for the fiscal third quarter ended July 30, 2023, increased 4.9% year-over-year to $8.88 billion. Its adjusted EBITDA rose 7.9% from the year-ago quarter to $5.80 billion.
In addition, the company’s non-GAAP net income and non-GAAP EPS improved 8.4% and 8.3% from the prior-year quarter to $4.60 billion and $10.54, respectively.
Analysts expect AVGO’s revenue to rise 7.9% year-over-year to $35.82 billion in the current fiscal year ending October 2023. Its EPS is also expected to improve 12% from the previous year to $42.15 in the current year. Additionally, the company has an excellent surprise history, surpassing the revenue and EPS estimates in each of the trailing four quarters.
The stock has surged 96.1% over the past year to close the last trading session at $858.41. It has soared 53.5% year-to-date.
AVGO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Momentum and Sentiment. Within the 89-stock Semiconductor & Wireless Chip industry, it is ranked #11.
Click here to see AVGO’s additional Growth, Value, and Stability ratings.
Stock #2: Diodes Incorporated (DIOD)
DIOD manufactures and supplies application-specific standard products across discrete, logic, analog, and mixed-signal semiconductor markets. The company caters to industrial, automotive, computing, communications, and consumer sectors through a network of direct sales, marketing teams, independent representatives, and distributors.
DIOD’s trailing-12-month EBIT and EBITDA margins of 19.56% and 26.51% are higher than the industry averages of 4.91% and 9.17%.
On September 19, DIOD introduced a new line of high-sensitivity Hall-effect sensors, the AH39xxQ series, designed for industrial and automotive applications. These sensors provide accurate speed and directional data with wide voltage tolerance and robust protection features, meeting automotive standards for ESD protection.
On September 14, DIOD expanded its automotive-compliant low dropout voltage regulator (LDO) offerings with the introduction of two series: the AP7583AQ and AP7583Q. These LDOs have a maximum output current of 300mA and a low dropout voltage of 320mV, making them well-suited for battery-connected automotive applications.
In the fiscal third quarter of 2023, DIOD expects revenue of around $425 million, with some potential variation due to inventory adjustments in certain markets. The company aims for a 40% gross margin while adjusting for manufacturing service agreements.
In the fiscal second quarter that ended June 30, 2023, DIOD’s net sales and gross profit stood at $467.15 million and $195.38 million, respectively. The company’s non-GAAP net income and non-GAAP earnings per share stood at $73.33 million and $1.59, respectively. Its non-GAAP EBITDA rose 2.1% year-over-year to $133.45 million.
DIOD’s revenue and EPS for the third quarter that ended September 2023 are expected to come at $425.42 million and $1.21, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Shares of DIOD have gained 5.4% year-to-date to close the last trading session at $80.06. Over the past year, it gained 16.3%.
It is no surprise that the stock has an overall rating of B, equating to a Buy in our proprietary rating system.
DIOD has an A grade for Value and a B for Momentum. It is ranked #9 within the same industry.
To see DIOD’s other POWR Ratings for Growth, Stability, Sentiment, and Quality, click here.
Stock #1: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells Magnetoresistive Random Access Memory (MRAM) products. The company offers Toggle MRAM, spin-transfer torque MRAM, and tunnel magnetoresistance sensor products. Additionally, it provides foundry services for MRAM products.
MRAM’s trailing-12-month EBIT and EBITDA margins of 7.77% and 9.62% are higher than the industry averages of 4.91% and 9.17%.
MRAM anticipates total revenue in the range of $15.40 million to $16.40 million in the third quarter of 2023. Additionally, the company expects the GAAP net income per basic share to fall within the range of $0.01 to $0.06.
During the fiscal second quarter that ended June 30, 2023, MRAM’s total revenue increased 7.1% year-over-year to $15.75 million. The company’s net income and comprehensive income rose 132.5% year-over-year to $3.89 million and net income per common share stood at $0.18, up 125% from the prior year quarter. Its adjusted EBITDA grew 66.7% from the year-ago quarter to $5.43 million.
Street expects MRAM’s revenue to rise 4.7% year-over-year to $15.95 million in the fiscal third quarter ended September 2023. It surpassed the EPS and revenue estimates in each of the trailing four quarters.
The stock surged 87.8% year-to-date to close the last trading session at $10.44. Over the past six months, it has gained 60.6%.
MRAM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Value, Momentum, and Quality. It is ranked #2 within the same industry.
In addition to the POWR Ratings highlighted above, one can access the additional MRAM ratings (Growth and Stability) here.
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AVGO shares were trading at $860.61 per share on Wednesday afternoon, up $2.20 (+0.26%). Year-to-date, AVGO has gained 56.70%, versus a 14.86% 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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