While macroeconomic challenges remain, the semiconductor industry’s future appears promising. With an increasing need for innovative technology, the industry seems well-positioned for expansion. So, I think semiconductor stocks QUALCOMM Incorporated (QCOM), Broadcom Inc. (AVGO), and Microchip Technology Incorporated (MCHP) could be worth adding to your portfolio for solid returns.
The Semiconductor Industry Association (SIA) reported global semiconductor sales were $124.5 billion in the second quarter of 2023, a 4.7% rise over the first quarter. Also, global sales in June 2023 reached $41.5 billion, a 1.7% increase month-over-month.
The growing popularity of advanced technologies such as AI and the Internet of Things (IoT), which enable memory chips to process massive amounts of data in less time, should present various prospects for growth to chip industry participants in the coming years.
These technologies can potentially transform healthcare, transportation, and manufacturing industries. As AI and IoT become more integrated into daily life, demand for memory chips is likely to rise, propelling the growth of chip industry players even further.
Moreover, the global semiconductor market is expected to grow at a 13.1% CAGR until 2032. This expansion can be ascribed to the rising demand for semiconductors in a number of sectors, including telecommunications, consumer electronics, and automobiles.
Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 30.4% returns over the past six months.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: QUALCOMM Incorporated (QCOM)
QCOM engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.
QCOM’s trailing-12-month EV/EBIT of 11.94x is 34.9% lower than the industry average of 18.35x. Its trailing-12-month EV/EBITDA of 10.37x is 31.7% lower than the industry average of 15.18x.
QCOM’s trailing-12-month ROTC of 21.02% is 788.4% higher than the 2.37% industry average. Its trailing-12-month ROCE of 47.02% is significantly higher than the 0.62% industry average.
QCOM’s total revenues came in at $8.45 billion in the fiscal third quarter that ended June 25, 2023, and its net income stood at $1.80 billion. Its EPS amounted to $1.60. Also, its operating income came in at $1.82 billion.
QCOM’s total current liabilities came in at $8.46 billion for the period that ended June 25, 2023, compared to $11.87 billion for the period that ended September 25, 2022. Its total liabilities came in at $28.33 billion, compared to $31 billion for the same period.
The consensus revenue estimate of $37.67 billion for the year ending September 2024 represents a 5.6% increase year-over-year. Its EPS is expected to grow 10.7% year-over-year to $9.18 for the same period. QCOM’s shares have gained 5% year-to-date to close the last trading session at $115.39.
QCOM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
QCOM has an A grade for Quality, Value and Momentum. Within the Semiconductor & Wireless Chip industry, it is ranked #18 out of 92 stocks. Click here for the additional POWR Ratings for Growth, Stability, and Sentiment for QCOM.
Stock #2: 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.
AVGO’s forward non-GAAP P/E multiple of 20.70 is 12.9% lower than the industry average of 23.77. Its forward EV/EBIT multiple of 17.49 is 4.7% lower than the industry average of 18.35.
AVGO’s trailing-12-month ROCE of 64.57% is significantly higher than the industry average of 0.62%. Its trailing-12-month net income margin of 39.35% is significantly higher than the industry average of 2.03%.
AVGO’s non-GAAP net revenue for the fiscal third quarter ended July 30, 2023, increased 4.9% year-over-year to $8.88 billion. Its adjusted EBITDA increased 7.9% year-over-year to $5.80 billion.
Additionally, its non-GAAP net income increased 8.4% year-over-year to $4.60 billion. Its non-GAAP EPS came in at $10.54, representing a 8.3% increase from the year-ago period.
Analysts expect AVGO’s revenue to increase 7.8% year-over-year to $35.80 billion for the year ending October 2023. Its EPS is expected to grow 12% year-over-year to $42.16 for the same period. It surpassed EPS estimates in all the four trailing quarters. The stock has gained 77.3% over the past year to close the last trading session at $872.52.
It’s no surprise that AVGO has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Sentiment, and Momentum. It is ranked #16 in the same industry.
Beyond what is stated above, we’ve also rated AVGO for Growth, Value and Stability. Get all AVGO ratings here.
Stock #1: Microchip Technology Incorporated (MCHP)
MCHP develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.
MCHP’s forward non-GAAP P/E multiple of 13.46 is 43.4% lower than the industry average of 23.77. Its forward EV/EBIT multiple of 12.37 is 32.6% lower than the industry average of 18.35.
MCHP’s trailing-12-month net income margin of 27.35% is significantly higher than the 2.03% industry average. Its trailing-12-month ROCE of 37.42% is significantly higher than the 0.62% industry average.
MCHP’s net revenue for the first quarter ended June 30, 2023, increased 16.6% year-over-year to $2.29 billion. Its non-GAAP gross profit came in at $1.57 billion, up 18.8% year-over-year.
Also, its non-GAAP net income and non-GAAP EPS came in at $905.30 million and $1.64, up 18% and 19.7% year-over-year, respectively.
Street expects MCHP’s revenue to increase 3.3% year-over-year to $8.72 billion for the year ending March 2024. Its EPS is expected to grow 1.6% year-over-year to $6.12 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Over the past year the stock has gained 26.7% to close the last trading session at $82.29.
MCHP’s strong fundamentals are 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 #11 in the same industry. It has a B grade for Momentum and Quality. To see additional MCHP’s ratings for Growth, Value, Stability, and Sentiment, click here.
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AVGO shares were trading at $872.52 per share on Monday afternoon, down $50.37 (-5.46%). Year-to-date, AVGO has gained 58.01%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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