Late last month, President Joe Biden signed an executive order to kick-start the implementation of the $280 billion CHIPS and Science Act, aimed at boosting the U.S. domestic chip-making market. The United States has also been encouraging foreign tech firms to manufacture in the country and expects an arrangement with Taiwan.
Moreover, the World Semiconductor Trade Statistics (WSTS) has forecasted the global semiconductor market to register another double-digit growth this year. The worldwide market is estimated to increase by 13.9% in 2022 and 4.6% in 2023.
Recently, popular semiconductor company Advanced Micro Devices, Inc. (AMD) reported receiving instructions from U.S. Officials to stop exporting its artificial intelligence chips to China. The new license requirements prevent the shipment of its MI250 chips to the country.
For the second quarter that ended June 25, 2022, AMD’s net revenue came in at $6.55 billion, up 70.1% year-over-year. However, its operating income decreased 36.7% year-over-year to $526 million. Its net income came in at $447 million, declining 37% year-over-year.
Moreover, AMD has registered weak momentum over the past months. It has declined 20% over the past month and 32.3% over the past six months to close its last trading session at $76.77. It is trading below its 50-Day Moving Average of $89.00 and its 200-Day Moving Average of $105.23.
Thus, we believe investors looking to invest in quality semiconductor stocks could consider buying Broadcom Inc. (AVGO), NXP Semiconductors N.V. (NXPI), STMicroelectronics N.V. (STM), and Axcelis Technologies, Inc. (ACLS) instead of AMD.
Broadcom Inc. (AVGO)
AVGO creates, manufactures, and distributes a range of semiconductor products globally. The company operates in two segments, Semiconductor Solutions, and Infrastructure Software.
On September 6, AVGO announced the delivery of its Trident 4C Ethernet switch ASIC, 12.8 terabits/second security switch. This product is equipped to detect flow anomalies in real time as a part of a rapid cyber-threat defense. This might benefit the company.
In August, AVGO and Tencent Holdings Ltd. (TCEHY) announced a strategic partnership to accelerate the adoption of high bandwidth co-packaged optics (CPO) network switches for cloud infrastructure. This innovation is expected to bolster the company’s market position.
AVGO’s net revenues grew 24.9% year-over-year to $8.46 billion for the third quarter ended July 31, 2022. Its adjusted EBITDA rose 30.4% from its prior-year quarter to $5.38 billion. The company’s non-GAAP net income came in at $4.24 billion, up 35.8% year-over-year, while its EPS increased 39.8% year-over-year to $9.73.
Analysts expect AVGO’s revenue to increase 20.2% year-over-year to $8.91 billion in the fiscal fourth quarter ending October 2022. Its EPS is expected to increase 31.8% year-over-year to $10.30 in the same quarter. It surpassed EPS estimates in all four trailing quarters, which is impressive.
Over the past three months, the stock has gained marginally to close the last trading session at $501.84.
AVGO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AVGO has an A grade for Quality and a B grade for Growth and Sentiment. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #4 out of 93 stocks.
Beyond what we’ve stated above, we have also given AVGO grades for Value, Momentum, and Stability. Get all AVGO ratings here.
NXP Semiconductors N.V. (NXPI)
NXPI, based in Eindhoven, the Netherlands, offers various semiconductor products. The company sells its products to various original equipment manufacturers, contract manufacturers, and distributors.
On August 25, NXPI’s board of directors approved the payment of an interim dividend of $0.845 per ordinary share for the third quarter of 2022, payable to shareholders on October 6. This reflects upon the company’s shareholder return ability.
On July 20, NXPI announced that it had signed a memorandum of understanding with Hon Hai Technology Group (Foxconn) to jointly develop platforms for a new generation of smart connected vehicles. This partnership is expected to extend the company’s technology portfolio to enable more capabilities.
NXPI’s revenue for its fiscal 2022 second quarter ended July 3 increased 27.6% year-over-year to $3.31 billion. The company’s non-GAAP operating income came in at $1.19 billion, up 43.7% from the prior-year period, while its non-GAAP gross profit increased 31.5% year-over-year to $1.92 billion. The company’s adjusted EBITDA rose 39.4% year-over-year to $1.36 billion.
Street expects the company’s EPS to be $3.66 for its fiscal third quarter ending September 2022, representing a 28.8% rise from the prior-year quarter. The consensus revenue estimate of $3.43 billion for the same fiscal quarter indicates a 19.9% year-over-year improvement. Additionally, NXPI has a record of surpassing Street EPS estimates in each of the trailing four quarters.
Over the past five days, the stock has gained 4.9% to close its last trading session at $163.10. The stock gained 2% intraday.
NXPI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It also has a B grade for Growth. NXPI is ranked #20 in the Semiconductor & Wireless Chip industry
To see the additional ratings for Value, Momentum, Stability, Sentiment, and Quality for NXPI, click here.
STMicroelectronics N.V. (STM)
STM creates, develops, produces, and distributes semiconductor products. It has three segments: The Automotive and Discrete Group; the Analog, MEMS, and Sensors Group; and the Microcontrollers and Digital ICs Group. The company is headquartered in Geneva, Switzerland,
On September 1, STM unveiled new microcontrollers (MCUs) targeting the coming electrified drivetrains and the foundation of the next generation of EVs. This technology enables the new vehicle platforms to handle growing data flows so the car can operate at peak performance and might drive up the company's revenues in the long run.
On July 20, STM and CARIAD, the software unit of Volkswagen AG (VWAGY), announced that they would launch the joint development of an automotive system-on-chip (SoC). The new launch might prove to be beneficial for the company.
STM’s net revenues came in at $3.84 billion for the second quarter ended July 2, 2022, up 28.3% year-over-year. STM’s gross profit totaled $1.82 billion, registering an increase of 50.2% year-over-year. Its net income increased 110.4% from the prior-year period to $867 million, while its EPS came in at $0.92, up 109.1% year-over-year.
STM’s revenue is expected to increase 32.5% year-over-year to $4.24 billion in the third fiscal quarter ending September 2022. Its EPS is expected to increase 101.4% year-over-year to $1.04 in the same quarter. Additionally, it has surpassed EPS estimates in three out of four trailing quarters, which is impressive.
Over the past three months, the stock has gained 8.8% to close the last trading session at $36.12. STM has gained 2.5% in the past five days.
It is no surprise that STM has an overall A rating, equating to a Strong Buy in our POWR Ratings system. The stock has a B grade in Growth, Value, Sentiment, and Quality.
STM ranked #1 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for Momentum and Stability for STM.
Axcelis Technologies, Inc. (ACLS)
ACLS designs, manufactures, and services ion implantation and other processing equipment used in the fabrication of semiconductor chips. The company provides high energy, high current, and medium current implanters for a variety of application requirements,
On July 13, ACLS announced a significant increase in production levels and staffing at the Company’s new Axcelis Asia Operations Center located in Pyeongtaek-Si, Gyeonggi-Do, Korea. This is expected to strengthen the company’s footprint.
ACLS’ total revenues came in at $221.18 million for the second quarter ended June 30, 2022, up 50.2% year-over-year. Its net income increased 133.7% from the same period last year to $44.19 million. In addition, its EPS grew 140% from the prior-year period to $1.32.
ACLS’ revenue is expected to increase by 27% year-over-year to $224.38 million in the third fiscal quarter ending September 2022. Its EPS is expected to increase 42.2% year over year to $1.15 in the same quarter. Also, it surpassed EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 25.6% to close the last trading session at $63.15. It has gained 18.1% in the past three months.
ACLS has an overall B rating equating to a Buy in our POWR Ratings system. It has a B grade for Value, Sentiment, and Quality. It is ranked #15 in the same industry.
We have also rated ACLS for Stability, Growth, and Momentum. Get all ACLS ratings here.
AVGO shares were trading at $492.75 per share on Tuesday afternoon, down $9.09 (-1.81%). Year-to-date, AVGO has declined -24.83%, versus a -18.75% 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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