Although the U.S. is working to strengthen its domestic chip sector, various issues like competition from China, labor shortages, and macroeconomic headwinds continue to impact the industry. Hence, I think while Advanced Micro Devices, Inc. (AMD) is best avoided, investors could wait for a better entry point for Veeco Instruments Inc. (VECO) and Amkor Technology, Inc. (AMKR).
Despite the growth potential, the semiconductor industry faces substantial challenges. U.S.-China tensions are affecting the global supply chain, leading to stricter controls on chip sales to China.
Adding to the grim landscape, while the chip shortage has improved, the industry grapples with the persistent threat of short-term sales downturns propelled by the turbulent currents of macroeconomic challenges and market cycles, casting a shadow of uncertainty over the entire year.
Moreover, the semiconductor industry faces the dangers of the impending shortage of engineers, computer scientists, and technicians in the United States, putting the expansion plans of the chip economy at risk.
The Semiconductor Industry Association, referring to a recent survey, stated that even though chipmakers are expected to create around 115,000 jobs by 2030, an alarming 58% of these positions could remain vacant due to a lack of qualified candidates.
Stock to Sell:
Advanced Micro Devices, Inc. (AMD)
AMD is a global semiconductor company that operates in four segments: Data Center; Client; Gaming; and Embedded segments.
AMD’s trailing-12-month CAPEX/Sales of 2.42% is 1.1% lower than the industry average of 2.45%. Its trailing-12-month asset turnover ratio of 0.32x is 47.6% lower than the industry average of 0.62x.
AMD’s forward EV/EBITDA of 47.63x is 216.4% higher than the industry average of 15.05x. Its forward EV/EBIT multiple of 35.98 is 95.5% higher than the industry average of 18.40.
During the fiscal second quarter that ended July 1, 2023, AMD’s net revenue declined 18% year-over-year to $5.36 billion. While its non-GAAP operating expenses rose 3% from the prior-year quarter to $1.61 billion, non-GAAP operating income fell 46% year-over-year to $1.07 billion.
In addition, AMD’s non-GAAP net income and earnings per share decreased 44% and 45% year-over-year to $948 million and $0.58, respectively.
Analysts expect AMD’s EPS and revenue to amount to $0.68 and $5.70 billion in the current quarter ending September 2023.
Over the past five days, the stock has lost marginally to close the last trading session at $116.81.
AMD’s poor fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
AMD has a D grade for Growth and Stability. It is ranked #85 out of 92 stocks in the D-rated Semiconductor & Wireless Chip industry.
Click here to access POWR Ratings for AMD (Value, Momentum, Sentiment, and Quality).
Stocks to Hold:
Veeco Instruments Inc. (VECO)
VECO develops, manufactures, sells, and supports semiconductor and thin film process equipment primarily to make electronic devices worldwide.
While VECO’s trailing-12-month gross profit margin of 40.29% is 16.2% lower than the industry average of 48.09%, its trailing-12-month EBIT margin of 8.39% is 87.4% higher than the industry average of 4.48%.
In terms of forward P/E, VECO is currently trading at 35.72, which is 33% higher than the industry average of 28.85. However, its forward EV/Sales of 2.27 is 21.3% lower than the 2.88 industry average.
During the fiscal second quarter ended June 30, 2023, VECO’s net sales declined 1.5% year-over-year to $161.64 million. However, its non-GAAP net income and EPS rose 2.9% year-over-year to $19.98 million and $0.36.
VECO’s revenue is expected to decrease 1.1% year-over-year to $170.08 million in the fiscal third quarter ending September 2023. Its EPS is expected to fall 26.2% year-over-year to $0.33 in the same quarter. However, it has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has declined marginally intraday but has gained 16.3% over the past month to close the last trading session at $28.19.
VECO’s POWR Ratings reflect its uncertain prospects. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.
VECO has a C grade for Growth, Stability, Sentiment, and Quality. It is ranked #21 in the Semiconductor & Wireless Chip industry.
Beyond what we stated above, we have also given VECO grades for Momentum and Value. Get all VECO ratings here.
Amkor Technology, Inc. (AMKR)
AMKR provides outsourced semiconductor packaging and test services in the U.S., Japan, Europe, the Middle East, Africa, and the Asia Pacific.
AMKR’s trailing-12-month gross profit margin of 16.43% is 65.8% lower than the industry average of 48.09%, but its trailing-12-month EBIT margin of 9.96% is 122.4% higher than the industry average of 4.48%.
AMKR’s forward non-GAAP P/E of 18.61x is 19.9% lower than the industry average of 23.23x.
AMKR’s net sales decreased 3.1% year-over-year to $1.46 billion. Its gross profit amounted to $186.87 million. In addition, its net income attributable to Amkor and net income attributable to Amkor per common share came in at $64.44 million and $0.26, respectively.
Street expects AMKR’s revenue for the fiscal third quarter ending September 2023 to fall 14.2% from the previous-year quarter to $1.79 billion. Also, its EPS is expected to decline 60.1% year-over-year to $0.50 in the same quarter. However, it has topped the consensus revenue estimates in three of the trailing four quarters.
Shares of AMKR have declined 5.5% over the past six months but have gained 19.5% year-to-date, closing its last trading session at $28.66.
AMKR’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, which translates to a Neutral in our proprietary rating system.
AMKR has a C grade for Sentiment, Stability, and Quality. It is ranked #24 in the same industry.
To see additional AMKR’s additional POWR Ratings for Growth, Momentum, and Value, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
AMD shares fell $1.16 (-0.99%) in premarket trading Tuesday. Year-to-date, AMD has gained 78.26%, versus a 17.92% 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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