The semiconductor industry has been struggling with supply chain blockages that have disrupted production capabilities. However, major chip-making companies have been investing heavily to establish new production plants to boost the industry’s output. Also, several government initiatives have been launched to support the industry. The House of Representatives passed the CHIPS Act investments totaling $52 billion earlier this year, aiming to strengthen domestic semiconductor manufacturing and research. The legislation is now awaiting reconciliation with a Senate version
In addition, demand for semiconductors remains as strong as ever. According to Fortune Business Insights, the global semiconductor market is projected to grow at a CAGR of 9.2% from 2022 to 2029. Investors’ interest in the semiconductor industry is also evident in the VanEck Vectors Semiconductor ETF’s (SMH) 8% returns over the past month.
Given this backdrop, we think the stocks of fundamentally solid and top-rated semiconductor companies QUALCOMM Incorporated (QCOM), STMicroelectronics N.V. (STM), United Microelectronics Corporation (UMC), Renesas Electronics Corporation (RNECF), and Semtech Corporation (SMTC) could prove to be wise bets this June.
Click here to checkout our Semiconductor Industry Report for 2022
QUALCOMM Incorporated (QCOM)
QCOM in San Diego, Calif., develops and commercializes foundational technologies for the wireless industry worldwide. It has three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); & Qualcomm Strategic Initiatives (QSI).
On May 23, 2022, QCOM announced a next-generation powerline communication device to address EV charging station communications needs. In the face of growing EV demand, this product launch is expected to enhance customer experience.
QCOM’s non-GAAP revenues came in at $11.16 billion, up 40.8% year-over-year for its second quarter ended March 27, 2022. Its non-GAAP net income came in at $3.66 billion, up 67.6% year-over-year. Also, its non-GAAP EPS was $3.21, up 68.9% year-over-year.
Analysts expect QCOM’s revenue to increase 33.4% in fiscal 2022 to $44.66 billion. Its EPS is expected to increase 46.8% to $12.54 in 2022. The stock has surpassed its EPS estimates in each of the trailing four quarters. Over the past month, it has gained 3.5% in price to close Friday’s trading session at $139.76.
QCOM’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has a B grade for Growth, Value, Momentum, Sentiment, and Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #4 out of 95 stocks. Click here to see the additional POWR Ratings for Stability for QCOM.
Note that QCOM is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM, and its subsidiaries design, develop, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and Asia Pacific. Its segments are Automotive and Discrete Group; Analog, MEMS and Sensors Group; and Microcontrollers and Digital ICs Group.
On May 11, 2022, STM announced its partnership with Microsoft (MSFT) to develop highly secure IoT devices. Daniel Colonna, STM’s Marketing Director, Microcontroller Division, said, “Our solution accelerates embedded development by increasing security as well as power efficiency and performance.”
For the first quarter, ended April 2, 2022, STM’s net revenues were $3.55 billion, up 17.6% year-over-year. Its net income came in at $747 million, up 105.2% year-over-year, while its EPS came in at $0.79, up 102.6% year-over-year.
STM’s revenue is expected to be $15.19 billion in its fiscal year 2022, representing a 19.1% year-over-year rise. The company’s EPS is expected to increase 52.8% year-over-year to $3.30 in the same period. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 9.4% in price to close Friday’s trading session at $40.23.
It is no surprise that STM has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has a B grade for Growth, Value, Momentum, Sentiment, and Quality.
STM is ranked #3 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for STM (Stability).
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. It operates through Wafer Fabrication and New Business segments.
On April 27, 2022, Jason Wang, UMC’s co-president, said, “The expansion at our Fab 12A P5 is coming online in the current quarter, which will help us meet excess 28nm demand that we haven’t been able to fulfill. We are also actively adding capacity at our overseas bases to support our customers’ long-term growth.”
UMC’s operating revenues came in at $2.22 billion for the first quarter, ended March 31, 2022, up 34.7% year-over-year. Its gross profit was $961 million, up 120.1% year-over-year. And its net income came in at $701 million, up 102.9% year-over-year.
Analysts expect UMC’s revenue to be $9.32 billion in its fiscal 2022, representing a 21.1% year-over-year rise, while the company’s EPS is expected to increase 34.9% year-over-year to $1.12. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 13.3% in price to close Friday’s session at $8.77.
UMC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Quality and a B grade for Growth and Value. It is ranked #2 in the Semiconductor & Wireless Chip industry. Click here to see the additional ratings for UMC (Momentum, Stability, and Sentiment).
Renesas Electronics Corporation (RNECF)
Headquartered in Tokyo, Japan, RNECF and its subsidiaries research, develop, design, manufacture, sell, and service semiconductors in Japan, China, North America, Europe, and the rest of Asia. Its segments are Automotive Business and Industrial/Infrastructure/IoT Business.
On May 17, 2022, RNECF announced a ¥90 billion ($700 million) investment in its Kofu Factory in Japan. This investment aims to resume sustainable production at the Kofu Factory and establish the company’s most extensive water fabrication line for power semiconductors.
RNECF’s revenue for the first quarter, ended March 31, 2022, came in at ¥346.70 billion ($2.71 billion), up 70.2% year-over-year. Also, its profit was ¥59.84 billion ($468.64 million), up 333.4% year-over-year, while its EPS was ¥30.15, up 289% year-over-year.
Analysts expect RNECF’s revenue to increase 70.1% year-over-year to $11.36 billion for its fiscal period ending Dec. 31, 2022. Over the past month, the stock has gained 7.3% in price to close Friday’s trading session at $11.91.
It is no surprise that RNECF has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Growth and a B grade for Value, Momentum, and Stability.
RNECF is ranked #9 in the Semiconductor & Wireless Chip industry. In addition, we have also rated the stock for Sentiment and Quality. Click here to get all the RNECF ratings.
Semtech Corporation (SMTC)
SMTC designs, develops, manufactures, and markets analog and mixed-signal semiconductor products and advanced algorithms. Its products are designed to benefit the engineering community and the global community, and the company is dedicated to reducing the impact it and its products have on the environment. SMTC is based in Camarillo, Calif.
On May 5, 2022, SMTC announced its collaboration with CITiLIGHT, a provider of smart lighting solutions for smart cities, to transform smart city street lighting with LoRaWAN®. “Semtech’s LoRa devices and the LoRaWAN standard are adding intelligence and networking to street lighting that is creating better and more sustainable smart cities. This, in turn, creates a smarter planet that also improves lives of citizens globally through the reduction in energy usage,” said Marc Pégulu, vice president of IoT product marketing and strategy for Semtech’s Wireless and Sensing Products Group.
SMTC’s net sales came in at $190.55 million for the fourth quarter, ended Jan. 30, 2022, up 15.7% year-over-year. Its net income was $34.79 million, up 122.6% year-over-year. And its EPS came in at $0.53, up 120.8% year-over-year.
SMTC’s revenue is expected to increase 13.4% to $840.02 million in 2023. Its EPS is expected to grow 28.7% to $3.36 in 2023. Also, it surpassed EPS estimates in each of the trailing four quarters. Andover the past month, the stock has gained 9% in price to close Friday’s trading session at $64.28.
SMTC has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B grade for Growth and Momentum. It is ranked #8 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for SMTC (Value, Stability, and Sentiment).
Click here to checkout our Semiconductor Industry Report for 2022
QCOM shares were trading at $139.91 per share on Tuesday morning, up $0.15 (+0.11%). Year-to-date, QCOM has declined -23.17%, versus a -12.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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