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. Therefore, it could be wise for investors to buy fundamentally sound chip stock Photronics, Inc. (PLAB) now. However, I think it would be wise to wait for a better entry point in NVIDIA Corporation (NVDA).
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects semiconductor industry.
The Semiconductor Industry Association (SIA) reported that global semiconductor sales grew 1.9% in September 2023 compared to August 2023.
John Neuffer, SIA president and CEO said, “Global semiconductor sales increased on a month-to-month basis for the seventh consecutive time in September, reinforcing the positive momentum the chip market has experienced during the middle part of this year. The long-term outlook for semiconductor demand remains strong, with chips enabling countless products the world depends on and giving rise to new, transformative technologies of the future.”
Moreover, the global artificial intelligence chip market is projected to reach $383.70 billion by 2032, increasing at a CAGR of 38.2%. The global AI chip market is expanding due to increased demand for smart homes, the development of smart cities, and the arrival of quantum computing.
The global semiconductor market is expected to reach $1.03 trillion by 2031, with a CAGR of 9.2%. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 19.4% returns over the past six months.
Let’s delve into the fundamentals of the featured stocks.
Stock to Buy:
Photronics, Inc. (PLAB)
PLAB manufactures Integrated Circuits (IC) and Flat Panel Display (FPD) photomasks, which it supplies to semiconductor designers, manufacturers, and FPD manufacturers. The company operates 11 manufacturing facilities across Taiwan, Korea, the United States, Europe, and China.
PLAB’s forward EV/EBITDA of 3.13x is 76.4% higher than the industry average of 13.23x. Its forward EV/EBIT of 4.12x is 76.4% higher than the industry average of 17.48x.
PLAB total current liabilities came in at $190.65 million for the period that ended July 30, 2023, compared to $197.80 million for the period that ended October 31, 2022. Its total current assets came in at $772.21 million, compared to $644.65 million for the same period.
The consensus revenue estimate of $920 million for the fiscal year ending October 2024 represents a 3.5% increase year-over-year. Its EPS is expected to grow at 14.2% year-over-year to $2.25 for the same period. PLAB’s shares has gained 32.9% over the past year to close the last trading session at $19.13.
PLAB’s POWR Ratings reflect this optimistic 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.
PLAB also has an A grade for Momentum and a B grade for Value and Quantity. It is ranked #6 out of 91 stocks in the Semiconductor & Wireless Chip industry. Click here for the additional POWR Ratings for Growth, Stability, and Sentiment for PLAB.
Stock to Hold:
NVIDIA Corporation (NVDA)
NVDA propels computation to tackle complex computational problems. Its Compute & Networking arm entails a data center accelerated computing platform, automotive AI cockpit, and advanced networking, whereas the Graphics segment offers GeForce GPUs for gaming, PC, gaming platform solutions, and more.
NVDA’s forward Price/Sales multiple of 19.87 is 732% higher than the industry average of 2.39. Its forward EV/EBITDA of 38.23x is 189% higher than the industry average of 13.23x.
NVDA’s net revenue for the second quarter ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. Also, its non-GAAP net income and non-GAAP EPS came in at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively.
However, its total current liabilities came in at $28.80 billion for the period that ended July 30, 2023, compared to $23.07 billion for the period that ended January 29, 2023. Its total liabilities came in at $49.56 billion, compared to $41.18 billion for the same period.
Analysts expect NVDA’s revenue to increase 100.5% year-over-year to $54.08 billion for the year ending January 2024. Its EPS is expected to grow 226.3% year-over-year to $10.90 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Over the past year the stock has gained 229.1% to close the last trading session at $435.06.
The stock has an overall C rating, translating to a Neutral in our POWR Ratings system. NVDA is ranked #27 in the same industry. Beyond what is stated above, we’ve also rated NVDA for Growth, Sentiment, Momentum, Stability, Value and Quality. Get all NVDA ratings here.
What To Do Next?
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PLAB shares were trading at $19.85 per share on Friday afternoon, up $0.72 (+3.76%). Year-to-date, PLAB has gained 17.94%, versus a 15.03% 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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