Thanks to the robust chip applications across various sectors, semiconductor companies have seamlessly navigated the choppy waters of cyclical downtrends over the past year. Moreover, semiconductor stocks have rallied so far this year, as evident by the iShares Semiconductor ETF’s (SOXX) 37.4% year-to-date returns.
In this article, I have uncovered why fundamentally sound chip stocks NVIDIA Corporation (NVDA), ASML Holding N.V. (ASML), and Everspin Technologies, Inc. (MRAM) could be quality additions to your watchlist.
Semiconductors are the fundamental building blocks for electronic devices like transistors, diodes, and Integrated Circuits (ICs). These electronic components are the backbone of modern electronics, indispensable in a wide range of applications, from computers and smartphones to medical equipment.
According to a SEMI and TechInsights report, electronics sales are projected to post healthy quarter-on-quarter growth of 10% in the third quarter of 2023, while memory IC sales are expected to log double-digit growth for the first time since the downturn started same time last year.
While the global semiconductor market is expected to see a double-digit downfall in 2023, according to World Semiconductor Trade Statistics, there is good news on the horizon. The industry body forecasts a robust recovery in 2024, with an estimated growth of 11.8%.
In addition, semiconductor chips are the backbone of Artificial Intelligence (AI), driving advancements in robotics, autonomous driving, and data analysis. The insatiable demand for processing power and speed will drive the development of AI to unprecedented heights.
As AI continues to advance by leaps and bounds, the demand for semiconductors will increase correspondingly. The global AI chip market is projected to generate $304.09 billion by 2030, expanding at an impressive CAGR of 29%.
According to SEMI’s mid-year forecast, global sales of total semiconductor manufacturing equipment are projected to rebound in 2024. After an estimated contraction of 18.6% in 2023, sales are expected to reach $87.40 billion, following the industry record of $107.4 billion in 2022.
Furthermore, the global semiconductor market is anticipated to reach a whopping $1.03 trillion in 2028, with a CAGR of 9.2 %. Given the solid footing of the industry, let’s delve into the fundamentals of robust chip stocks mentioned above.
NVIDIA Corporation (NVDA)
NVDA is a global provider of graphics, computation, and networking technologies. The company operates through two segments: Graphics; and Compute & Networking. The company’s products are used in the gaming, professional visualization, data center, and automobile industries.
On August 8, NVDA unveiled a significant launch of its NVIDIA Omniverse™ platform, introducing novel foundational applications and services. As industries accelerate digital transformation, the surge for OpenUSD-enabled, interconnected, 3D software ecosystems intensifies.
The updated Omniverse is expected to enable developers to harness generative AI via OpenUSD, amplifying tool capabilities while empowering enterprises to construct expansive, intricate world-scale simulations as digital proving grounds for industrial innovations.
The company introduced the forthcoming NVIDIA GH200 Grace Hopper™ platform on the same day, featuring an innovative Grace Hopper Superchip housing the pioneering HBM3e processor. Crafted to thrive in the realm of accelerated computing and generative AI, this platform heralds a new era of technological advancement.
With escalating demand for generative AI solutions, the GH200 Grace Hopper Superchip, tailored for data centers, positions NVDA to capture a lucrative market. Its cutting-edge memory tech and server architecture are expected to enhance performance, attract clients and potentially boost revenue.
On June 26, NVDA, in partnership with Snowflake Inc. (SNOW) and Accenture plc (ACN), introduced AI Lighthouse, a first-of-its-kind program designed to fast-track the development and adoption of enterprise generative AI capabilities. AI Lighthouse unites the SNOW enterprise automation platform and engine, NVDA AI supercomputing and software, and ACN consulting and deployment services.
Expanding on the existing strategic partnership, the comprehensive offering will allow customers to collaborate as design partners in architecting custom generative AI large language models and applications to advance their businesses.
For the fiscal 2024 first quarter that ended April 30, 2023, NVDA’s income from operations rose 14.6% year-over-year to $2.14 billion. Its net income and EPS grew 26.3% and 28.1% from the prior year’s quarter to $2.04 billion and $0.82, respectively.
Also, its cash inflow from operating activities increased 68.2% from the year-ago value to $2.91 billion. In addition, NVDA’s free cash flow stood at $2.64 billion, up 96.1% year-over-year.
The consensus EPS estimate of $2.35 for the third quarter (ending October 2023) represents a 304.8% improvement year-over-year. The consensus revenue estimate of $12.28 billion for the current quarter represents a 107.1% increase from the same period last year. The company has an excellent surprise history, as it surpassed the consensus revenue estimates in each of the trailing four quarters.
NVDA’s trailing-12-month net income margin and ROCE of 18.52% and 18.86% are significantly higher than the industry averages of 2.01% and 0.62%, respectively. Its trailing-12-month EBITDA margin of 23.53% is 162.8% higher than the industry average of 8.96%. In addition, the stock’s trailing-12-month levered FCF margin of 21.14% compare to the industry average of 7.06%.
The stock has soared 196.6% year-to-date to close the last trading session at $433.43.
NVDA’s POWR Ratings reflect this outlook. It has a B grade for Sentiment and Quality. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In the 92-stock Semiconductor & Wireless Chip industry, it is ranked #40. Click here to see the other ratings of NVDA for Growth, Value, Momentum, and Stability.
ASML Holding N.V. (ASML)
Headquartered in Veldhoven, Netherlands, ASML develops, produces, markets, sells, and services advanced semiconductor equipment systems consisting of lithography, metrology, and inspection systems for memory and logic chipmakers.
On June 28, ASML signed a Memorandum of Understanding (MOU) with Imec, a leading research and innovation hub in nanoelectronics and digital technologies, to develop a state-of-the-art high-numerical aperture (High-NA) extreme ultraviolet (EUV) lithography pilot line at Imec.
This groundbreaking new High-NA technology enables innovative deep-tech solutions that could be used to tackle some of the major challenges in healthcare, nutrition, mobility/automotive, climate change, and sustainable energy. Through this, ASML is significantly supporting semiconductor research and sustainable innovation in Europe, which should benefit the company.
For the fiscal second quarter that ended on July 2, 2023, ASML’s net sales increased 27.1% year-over-year to €6.90 billion ($7.51 billion), while its gross profit grew 33% from the year-ago value to €3.54 billion ($3.85 billion).
Its income from operations stood at €2.26 billion ($2.46 billion), up 36.9% year-over-year. The company’s net income amounted to €1.94 billion ($2.11 billion) and €4.93 per share, representing an increase of 37.6% and 39.3% year-over-year, respectively.
Street expects ASML’s EPS and revenue to increase 21.1% and 29.6% year-over-year to $5.08 and $7.32 billion, respectively, for the third quarter (ending September 2023). Additionally, the company topped the EPS and revenue estimates in each of the four trailing quarters, which is excellent.
ASML’s trailing-12-month net income margin, ROCE, and ROTC of 27.40%, 68.44%, and 33.73% are significantly higher than the industry averages of 1.99%, 0.62%, and 2.09%, respectively. Its trailing-12-month EBITDA margin of 34.36% is 283.7% higher than the industry average of 8.96%.
Over the past year, the stock has gained 15.6% to close the last trading session at $644.34.
ASML’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system. It also has an A grade for Momentum and a B for Sentiment and Quality. Within the same industry, it is ranked #18.
Click here to see the additional ratings for ASML (Growth, Value, and Stability).
Everspin Technologies, Inc. (MRAM)
MRAM is engaged in the manufacturing and sale of Magnetoresistive Random Access Memory (MRAM) products and solutions. Its offerings include Toggle MRAM, spin-transfer torque MRAM, tunnel magnetoresistance sensor products, and foundry services for MRAM products.
In the second quarter (ended June 30, 2023), MRAM’s total revenues increased 7.1% year-over-year to $15.75 million, while its gross profit grew 7% from the year-ago value to $9.19 million. The company’s net income came in at $3.88 million and $0.18 per share, representing 132.5% and 125% year-over-year improvements. Also, its adjusted EBITDA stood at $5.43 million, up 66.7% from the prior-year quarter.
Analysts expect MRAM’s revenue for the third quarter (ending September 30, 2023) to increase 4.3% year-over-year to $15.90 million. Its EPS is expected to be $0.15 in the same period and increase by 20% per annum over the next five years. Moreover, the stock topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is promising.
The stock’s trailing-12-month net income margin of 11.65% is 479.4% higher than the 2.01% industry average. Moreover, the stock’s trailing-12-month EBIT margin of 7.77% is 73.5% higher than the industry average of 4.48%. Also, its trailing-12-month ROCE of 18.07% compares to the 0.62% industry average.
MRAM’s shares have gained 54.8% over the past nine months and 68.7% year-to-date to close the last trading session at $9.38.
It’s no surprise that MRAM has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Value and Quality. Out of 92 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have MRAM’s ratings for Growth, Momentum, and Stability. Get all MRAM ratings here.
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NVDA shares were trading at $431.22 per share on Friday afternoon, down $2.22 (-0.51%). Year-to-date, NVDA has gained 195.15%, versus a 14.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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