Chip Momentum: Top 3 Picks for 2024

The global semiconductor market is optimistic, anticipating sustained growth due to increasing consumer demand, technological advancements, and the rise in investments driven by factors like widespread AI and machine learning adoption.

Therefore, investors could consider investing in top chip stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Infineon Technologies AG (IFNNY), and STMicroelectronics N.V. (STM) this year.

According to the Semiconductor Industry Association (SIA), November 2023 saw a robust 5.3% year-over-year growth in global semiconductor sales, reaching $48 billion. The positive trend, signaling renewed strength in the global chip market, included notable sales increases in China, Asia Pacific, Europe, and the Americas. The SIA President foresees double-digit growth continuing throughout 2024.

Moreover, the semiconductor industry plays a crucial role in consumer electronics, healthcare, automotive, telecommunications, data centers, and defense. The growing demand for cutting-edge chips is fueling significant expansion in the industry amid relentless tech innovations. The global semiconductor market is projected to expand at a double-digit CAGR of 12.3% to reach around $1.88 trillion by 2032.

Besides, the global semiconductor manufacturing equipment market is set to grow, driven by a surge in demand for miniature devices and intricate IC designs, alongside advancements in cloud technology, 5G networks, and the rising need for connected vehicles. The global semiconductor manufacturing equipment market is expected to expand at a CAGR of 7.9% from 2024 to 2030.

Furthermore, International Data Corporation (IDC) predicts a growth rate above 20% in the semiconductor market in 2024, driven by increased AI demand, particularly in automotive. The automotive sector, led by ADAS and infotainment, is expected to contribute to steady growth, while AI applications will expand from data centers to personal devices.

Considering these conducive trends, let’s examine the fundamentals of three Semiconductor & Wireless Chip stock picks, beginning with the third choice.

Stock #3: Taiwan Semiconductor Manufacturing Company Limited (TSM)

Based in Hsinchu City, Taiwan, TSM is a leading global semiconductor manufacturer, specializing in advanced integrated circuits. Its products serve diverse industries, including high-performance computing, smartphones, and automotive applications.

TSM’s trailing-12-month EBIT margin of 45.63% is 827.3% higher than the industry average of 4.92%. Its 67.86% trailing-12-month EBITDA margin is 620.7% higher than the 9.42% industry average.

During the third quarter, which ended September 30, 2023, TSM reported net revenue of NT$546.73 billion ($17.28 billion). Its net income and EPS amounted to NT$210.80 billion ($6.78 billion) and NT$8.14, respectively. The company's total assets amounted to NT$5.48 trillion ($176.32 billion), compared to its previous-year quarter’s total assets of NT$4.64 trillion ($149.27 billion).

For the fourth quarter ending December 2023, the company expects its net revenue to be in the range of $18.80 billion to $19.60 billion.

TSM’s revenue and EPS are expected to grow 27.2% and 22% year-over-year to $19.63 billion and $1.39, respectively, for the second quarter ending June 2024. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.

TSM’s shares have gained 16.4% over the past year to close the last trading session at $101.24. It gained marginally intraday.

TSM’s POWR Ratings reflect its positive prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TSM has an A grade for Sentiment and Quality and a B for Momentum. Within the Semiconductor & Wireless Chip industry, it is ranked #17 among 91 stocks.

In addition to the POWR Ratings stated above, one can access TSM’s additional Growth, Value, and Stability ratings here.

Stock #2: Infineon Technologies AG (IFNNY)

Headquartered in Neubiberg, Germany, IFNNY is a global semiconductor firm specializing in automotive microcontrollers, sensors, and secure connectivity solutions. Its products serve diverse industries, including automotive, industrial power, and secure systems.

IFNNY’s trailing-12-month EBIT margin of 24.84% is 404.9% higher than the industry average of 4.92%. Its 19.23% trailing-12-month net income margin is 715.6% higher than the 2.36% industry average.

On January 10, 2024, IFNNY announced enhancements in its supply chain resilience through a partnership with SK Siltron CSS for the supply of competitive silicon carbide (SiC) wafers. The collaboration supports IFNNY's commitment to providing high-quality, energy-efficient SiC products amid increasing market demand.

In the fourth quarter that ended September 30, 2023, IFNNY’s revenue grew marginally year-over-year to €4.15 billion ($4.54 billion). Adjusted profit for the period from continuing operations attributable to shareholders of IFNNY and EPS rose 3.5% and 3.2%, respectively, from the previous year’s quarter to €846 million ($926.30 million) and €0.65.

Its total liabilities amounted to €11.40 billion ($12.48 billion), compared to its prior-year quarter’s total liabilities of €11.97 billion ($13.10 billion).

The company expects to generate revenue of around €3.80 billion ($4.16 billion) in the fiscal first quarter of 2024.

Analysts expect IFNNY’s revenue to grow 5.5% year-over-year to $4.72 billion for the third quarter ending June 2024. Its EPS for the same period is expected to be $0.67. The company surpassed the EPS estimates in each of the trailing four quarters.

The stock has gained 9.5% over the past year to close the last trading session at $37.53.

IFNNY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Value, Momentum, and Stability. Within the same industry, it is ranked #6.

To see IFNNY’s additional POWR Ratings for Growth, Sentiment, and Quality, click here.

Stock #1: STMicroelectronics N.V. (STM)

Based in Geneva, Switzerland, STM is a semiconductor company operating globally, with segments covering automotive integrated circuits, analog products, sensors, and microcontrollers. Its product range serves diverse markets, including automotive, industrial, personal electronics, and communications equipment.

STM’s trailing-12-month EBIT margin of 29.40% is 497.6% higher than the industry average of 4.92%. Its 27.23% trailing-12-month net income margin is significantly higher than the 2.36% industry average.

On January 10, 2024, STM announced that it was restructuring its organization, effective February 5, 2024, to accelerate time-to-market and product development efficiency. The company is consolidating from three to two Product Groups: Analog, Power & Discrete, MEMS and Sensors (APMS), and Microcontrollers, Digital ICs and RF products (MDRF).

Additionally, a new application marketing organization by end market will be implemented to offer complete system solutions, complementing the existing Sales & Marketing structure.

During the third quarter, which ended September 30, 2023, STM’s net revenues and gross profit increased 2.5% and 2.4% from the previous-year quarter to $4.43 billion and $2.11 billion, respectively. The company's net income and EPS stood at $1.09 billion and $1.16, respectively.

Also, as of September 30, 2023, the company’s current assets came in at $10.99 billion, compared to $9.81 billion as of December 31, 2022. In addition, its total assets amounted to $22.56 billion, up from $19.98 billion as of December 31, 2022.

Street expects STM’s revenue and EPS to grow 7.5% and 2.1% year-over-year to $17.34 billion and $4.28, respectively, for the fiscal year ended December 2023. The company surpassed the revenue estimates in each of the trailing four quarters.

STM’s shares have gained 6.9% over the past year to close the last trading session at $43.56.

STM’s POWR Ratings reflect a robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

The stock has an A grade for Value and a B for Momentum and Quality. Within the same industry, it is ranked #4.

Click here for STM’s additional Growth, Stability, and Sentiment ratings.

What To Do Next?

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TSM shares were trading at $101.24 per share on Monday afternoon, up $0.02 (+0.02%). Year-to-date, TSM has declined -2.65%, versus a 0.29% rise in the benchmark S&P 500 index during the same period.

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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