Despite supply chain disruptions brought on by the United States’ conflict with China, the semiconductor industry continues to expand significantly due to the growing demand for chips widely employed in various equipment and across multiple sectors. Furthermore, the industry is projected to witness significant growth in the long run with the advancement of emerging technologies.
Additionally, increasing corporate and government investments should bolster the industry’s growth. Last year, President Joe Biden signed the CHIPS and Science Act into law to strengthen domestic semiconductor production and innovation. The CHIPS and Science Act provided approximately $52 billion in chip manufacturing incentives, investments, R&D, and workforce development.
SEMI's most recent World Fab Forecast report shows that the global semiconductor industry is expected to invest more than $500 billion in 84-volume chipmaking facilities, with construction starting from 2021 to 2023. Segments such as automotive and high-performance computing are expected to fuel the increased spending.
While macroeconomic headwinds hampered the industry’s performance last year, the global semiconductor market still managed to generate $601.70 billion in revenue in 2022, up from $595 billion in 2021. According to a report by DIGITIMES Research, the global semiconductor market is expected to exceed $1 trillion in 2030, growing at a CAGR of 7%.
Investors’ interest in semiconductor stocks is evident from the iShares Semiconductor ETF’s (SOXX) 15.5% gains over the past month, compared to the 5.2% returns of the S&P 500 index.
Against this backdrop, quality semiconductor stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Broadcom Inc. (AVGO), Photronics, Inc. (PLAB), and Xperi Inc. (XPER) could be ideal buys right now.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests, and markets integrated circuits and other semiconductor products globally. It offers complementary methods for fabricating metal oxide silicon wafers to produce embedded memory, mixed-signal, radio frequency, and logic semiconductors.
On December 29, 2022, TSM reported that its 3nm technology reached volume production with good yields and had a topping ceremony for its Fab 18 Phase 8 facility. The business believes that within five years of volume production, 3nm technology would produce end products with a market value of $1.50 trillion.
Moreover, on December 6, the company revealed that in addition to the first fab in Arizona, which is set to start producing N4 process technology in 2024, it has also begun building a second fab that would start production of 3nm process technology by 2026.
The combined investment for these two fabs is expected to be close to $40 billion, making it one of the largest foreign direct investments in U.S. history. When fully operational, the two fabs owned by TSM Arizona could produce over 600,000 wafers annually with an anticipated end-product value of over $40 billion.
In terms of forward non-GAAP P/E, TSM is trading at 16.39x, which is 18.6% lower than the 20.14x industry average. Additionally, its forward EV/EBITDA multiple of 7.88 is 41.4% lower than the industry average of 13.45.
TSM’s net revenue for the fiscal fourth quarter (ended December 31, 2022) increased 42.8% year-over-year to $19.93 billion, while its gross profit grew 68.7% year-over-year to $12.40 billion. Its income from operations rose 77.8% from the prior year’s period to $10.36 billion.
In addition, the company’s net income came in at $9.43 billion, a 77.8% growth from the previous year’s quarter, and its EPS grew 78% year-over-year to $0.36.
Analysts expect TSM’s revenue for the fiscal year ending December 2024 to increase 20.1% year-over-year to $92.26 billion. The company’s EPS for the same year is expected to increase 23% from the prior year to $7. TSM surpassed its consensus EPS in each of the four trailing quarters, which is impressive.
The stock has gained 25.5% over the past month to close the last trading session at $93.13.
TSM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Momentum. Within the B-rated 92-stock Semiconductor & Wireless Chip industry, it is ranked #20.
Beyond what we stated above, we also have TSM’s ratings for Growth, Value, Stability, and Sentiment. Get all TSM ratings here.
Broadcom Inc. (AVGO)
AVGO designs, develops, and sells various semiconductor devices globally, focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products. The company operates through two segments, Semiconductor Solutions; and Infrastructure Software.
On December 15, 2022, AVGO announced the debut of a new solution that could allow enterprises to store mainframe data anywhere, including the cloud. Its CA 1 Flexible Storage solution offers secure and cost-effective mainframe data storage options for hybrid IT environments. The new solution should boost AVGO’s revenue.
On October 25, AVGO announced that its ValueOps solution, Rally Software®, had received the Government Risk and Authorization Management Program (FedRAMP) authorization for use by federal agencies and departments procuring cloud services. FedRAMP may enable organizations to employ current cloud technology and hasten the uptake of secure cloud solutions, which should benefit AVGO.
AVGO’s forward non-GAAP P/E of 14.51x is 27.9% lower than the industry average of 20.14x. Furthermore, its forward EV/EBITDA multiple of 12.35 is 8.2% lower than the 13.45 industry average.
For the fourth quarter of fiscal 2022 that ended October 30, 2022, AVGO’s non-GAAP net revenue increased 20.6% year-over-year to $8.93 billion, and its non-GAAP gross margin rose 20.7% from the prior year’s quarter to $6.67 billion. The company’s adjusted EBITDA grew 25.8% year-over-year to $5.72 billion.
In addition, AVGO’s adjusted net income increased 29.8% from the year-ago value to $4.54 billion, while its adjusted EPS came in at $10.45, up 33.8% year-over-year.
The consensus revenue estimate of $35.19 billion for the fiscal year ending October 2023 indicates a 6% year-over-year improvement. Likewise, the current year's consensus EPS estimate of $40.73 indicates a rise of 8.2% from the previous year. Moreover, AVGO surpassed the consensus EPS estimates in all four trailing quarters.
Shares of AVGO have gained 8.4% over the past six months to close the last trading session at $581.45.
AVGO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #10 of 92 stocks.
Click here to see additional ratings of AVGO for Growth, Value, Stability, Sentiment, and Momentum.
Photronics, Inc. (PLAB)
PLAB manufactures and markets photomask products and services in the United States, Taiwan, Korea, Europe, China, and globally. The company sells photomasks that make integrated circuits and flat panel displays (FPDs). It makes its products available to foundries, designers, and producers of FPDs and semiconductors.
In terms of forward non-GAAP P/E, PLAB is trading at 9.48x, 52.9% lower than the industry average of 20.14x. Moreover, its forward EV/EBITDA multiple of 3.33 is 75.3% lower than the industry average of 13.45.
For the fourth quarter that ended October 31, 2022, PLAB’s revenue increased 16% year-over-year to $210.27 million, while its gross profit came in at $80.27 million, a 54.5% increase from the prior year’s quarter. The company’s operating income stood at $60.54 million, an 80.6% rise from the previous year’s quarter.
In addition, PLAB’s net income increased 93% year-over-year to $55.26 million, and its EPS stood at $0.60, an 81.8% rise from the prior year’s quarter.
Analysts expect PLAB’s revenue to increase 5.9% year-over-year to $201 million for the first quarter ending January 2023. The company’s EPS for the current quarter is expected to increase by 5.3% year-over-year to $0.40. Furthermore, PLAB surpassed its consensus EPS in all four trailing quarters, which is impressive.
Shares of PLAB have gained 3.8% over the past month to close the last trading session at $17.50.
PLAB’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Momentum, Sentiment, and Quality. Within the same industry, it has ranked #4 of 92 stocks.
Click here to see additional ratings of PLAB (Growth and Stability).
Xperi Inc. (XPER)
XPER provides a suite of software and services. It provides customers with a seamless end-to-end entertainment experience, from selection to consumption. The company offers Pay-TV solutions, including UX solutions, IPTV solutions and video metadata and service, consumer electronics solutions, and connected car solutions.
On January 4, 2023, TiVo, an XPER subsidiary, and Amlogic, a leading fabless semiconductor manufacturer, announced that they had pre-integrated TiVo® OS on Amlogic T962D4 and T950D4 chipsets for the American and European markets.
By collaborating with the Amlogic team and other mutual smart TV ecosystem partners, the company should be able to provide a turnkey, cost-effective, and market-ready TV OS and move closer to our objective of becoming a major independent TV OS platform supplier.
On the same day, DTS, Inc., a wholly owned subsidiary of XPER, Sony Pictures Entertainment (SPE), and IMAX Corporation (IMAX), announced a significant expansion of the IMAX Enhanced® ecosystem. Continuing to work with SPE and IMAX and enhancing its user experience could prove favorable for DTS.
In terms of forward EV/Sales, XPER is trading at 0.67x, 76.8% lower than the industry average of 2.87x. Moreover, its forward Price/Sales multiple of 0.84 is 71.1% lower than the industry average of 2.90.
For the fiscal third quarter that ended September 30, 2022, XPER’s revenues increased 3.3% year-over-year to $121.64 million. As of September 30, 2022, XPER’s cash and cash equivalents stood at $180.12 million compared to $120.70 million as of December 31, 2021, while total current assets came in at $336.30 million as compared to $277.14 million on December 31, 2021.
The consensus revenue estimate of $528.28 million for the fiscal year ending December 2023 indicates a 6.2% year-over-year improvement. Furthermore, analysts expect the company’s EPS for the next year to grow 88% year-over-year. XPER has gained 14.9% over the past month to close the last trading session at $9.97.
XPER’s POWR Ratings reflect its solid outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #3 of 92 stocks.
We also have XPER’s ratings for Momentum, Value, and Stability. Get all XPER ratings here.
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TSM shares were trading at $91.15 per share on Tuesday morning, down $1.98 (-2.13%). Year-to-date, TSM has gained 22.37%, versus a 5.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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