Semiconductor Stock 2024 Insights: Top 3 Picks to Buy

With the growing demand owing to chips’ high-computing applications across several industries, favorable government initiatives, and the adoption of advanced digital technologies, the semiconductor industry is well-poised to witness robust growth in 2024 and beyond.

Considering the industry’s bright prospects, fundamentally sound semiconductor stocks Photronics, Inc. (PLAB), United Microelectronics Corporation (UMC), and Applied Materials, Inc. (AMAT) could be ideal buys for potential gains.

Semiconductors are crucial for multiple applications in electronics, communications, automotive, agriculture, healthcare, finance, and energy. After a slight turmoil phase during 2023, it is expected that the chip industry will exhibit a strong recovery and thrive this year and beyond.

According to the latest forecast by the World Semiconductor Trade Statistics (WSTS), the global semiconductor market is anticipated to reach a valuation of $588 billion in 2024, indicating a growth of 13.1%. This growth will be primarily fuelled by the Memory sector, which is on track to surge to nearly $130 billion this year, up an impressive 40% from the prior year.

The U.S.-China chips rivalry has pushed the economy to take some serious steps to advance in-house chip manufacturing. This has driven a strong wave of increased domestic manufacturing, implementation of the CHIPS Act, and advancement in technologies.

The CHIPS Act, which became law in 2022, allocated about $52.7 billion over five years to boost domestic manufacturing and the R&D and workforce programs. Also, semiconductor companies will get 25% investment tax credits for investing in chip manufacturing or specialized tooling equipment.

According to SEMI’s latest quarterly World Fab Forecast report, the global semiconductor capacity is projected to expand by 6.4% in 2024 to top the 30 million wafers per month (wpm) mark for the first time after increasing 5.5% to 29.6 wpm in 2023. The report shows Americas rising chip capacity by 6% year-over-year to 3.1 million wpm with six new fabs this year.

The growth in 2024 will be driven mainly by capacity increases in leading-edge logic and foundry, applications like generative AI and high-performance computing (HPC), and the recovery in end demand for chips.

The global semiconductor market size is projected to reach $1.89 trillion by 2032, growing at a CAGR of 12.3% during the forecast period.

Given these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.

Stock #3: Applied Materials, Inc. (AMAT)

AMAT provides manufacturing equipment, services, and software to semiconductor, display, and related industries in the U.S., China, Korea, Japan, Southeast Asia, and Europe. It operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.

On January 9, 2024, AMAT announced its collaboration with Alphabet-owned Google on advanced technologies for augmented reality (AR). This collaboration brings together AMAT’s leadership in materials engineering with Google’s platforms, products and services to create lightweight visual display systems for the next version of AR experiences.

This strategic partnership opens endless possibilities for future AR product categories, benefitting both companies significantly.

On December 13, 2023, AMAT and Ushio, Inc., a manufacturer and seller of lamps, lasers, light-emitting diodes, and other light sources in the ultraviolet, visible, and infrared bands entered a strategic partnership to advance the industry’s roadmap for heterogeneous integration (HI) of chiplets into 3D packages.

The entities are jointly bringing the first digital lithography system designed explicitly for patterning the advanced substrates needed in the Artificial Intelligence (AI) era of computing to accelerate the transition to greater functionality.

AMAT’s trailing-12-month net income and levered FCF margins of 25.86% and 20.33% are considerably higher than the respective industry averages of 2.36% and 8.65%. Likewise, the stock’s trailing-12-month CAPEX/Sales of 4.17% is 76.3% higher than the industry average of 2.37%.

For the fourth quarter that ended October 29, 2023, AMAT reported net sales of $6.72 billion. Its adjusted gross profit increased 2.2% year-over-year to $3.18 billion. Also, the company’s adjusted net income and adjusted EPS increased 2.6% and 4.4% year-over-year to $1.79 billion and $2.12, respectively.

In addition, the company’s non-GAAP free cash flow came in at $1.25 billion, up 96.5% from the prior year’s quarter.

Analysts expect AMAT’s EPS for the fiscal year (ending October 2025) to increase 16.7% year-over-year to $8.96. The consensus revenue estimate of $28.69 billion for the next year indicates a 9.7% rise year-over-year. Moreover, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters.

AMAT’s stock has gained 8.9% over the past six months and 37.3% over the past year to close the last trading session at $151.25.

AMAT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

AMAT’s stock has a B grade for Quality and Momentum. Within the Semiconductor & Wireless Chip industry, AMAT is ranked #14 of 91 stocks.

Click here to access additional ratings of AMAT for Growth, Stability, and Quality.

Stock #2: United Microelectronics Corporation (UMC)

Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry internationally. It provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. The company caters to fabless design companies and integrated device manufacturers.

On October 31, UMC initiated the W2W (wafer-to-wafer) 3D IC project along with partners Winbond, Faraday, ASE, and Cadence to help customers accelerate production of their 3D products. With partner collaboration, the W2W 3D IC project targets edge AI applications like home and industrial IoT, security, and smart infrastructure.

The project will help the company expand its operations by offering an end-to-end solution for integrating memory and processor with silicon stacking technology, catering to the growing demand for efficient computing at the device level as AI expands from the cloud to the edge.

UMC’s trailing-12-month EBITDA and net income margins of 45.31% and 29.37% are 381.3% and 1145.4% higher than the industry averages of 9.42% and 2.36%, respectively. Further, the stock’s trailing-12-month ROCE of 20.81% is significantly higher than the industry average of 1.46%.

In the third quarter that ended September 30, 2023, UMC’s operating revenues increased 1.4% from the prior quarter to $1.77 billion. The company’s gross profit increased marginally quarter-over-quarter to $634 million. In addition, net income attributable to shareholders of the parent and earnings per ADS were $495 million and $0.20, respectively.

Street expects UMC’s revenue for the second quarter (ending June 2024) to increase 3.4% year-over-year to $1.86 billion. For the fiscal year ending December 2024, its revenue is expected to increase 8.2% year-over-year to $7.77 billion. Also, the company has topped consensus revenue and EPS estimates in three of the four trailing quarters.

Shares of UMC have surged 2.5% over the past six months and 5% over the past year to close the last trading session at $7.95.

UMC’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

UMC has a B grade for Momentum, Value, and Quality. It is ranked #7 out of 91 stocks in the Semiconductor & Wireless Chip industry.

In addition to the POWR Ratings we’ve stated above, we also have UMC ratings for Growth, Sentiment, and Stability. Get all UMC ratings here.

Stock #1: Photronics, Inc. (PLAB)

PLAB is a manufacturer and seller of photomask products and services worldwide. The company offers photomasks that are used in the manufacture of integrated circuits and flat panel displays (FPDs) and to transfer circuit patterns onto semiconductor wafers and FDP substrates. It sells products to semiconductors and FPD manufacturers, designers, and foundries.

PLAB’s trailing-12-month EBIT margin of 28.37% is 476.5% higher than the industry average of 4.92%. Its trailing-12-month net income margin of 14.07% compared favorably to the 2.36% industry average. Moreover, the stock’s trailing-12-month levered FCF margin of 13.73% is 58.7% higher than the industry average of 8.65%.

In terms of forward non-GAAP P/E, PLAB is trading at 12.60x, 46.9% lower than the industry average of 23.74x. Likewise, the stock’s forward EV/Sales multiple of 1.75 is 39.1% lower than the industry average of 2.87. Also, its forward Price/Sales of 1.94x is 31.9% lower than the industry average of 2.85x.

PLAB’s revenue increased 8.2% year-over-year to $227.47 million during the fourth quarter that ended October 31, 2023. Its gross profit grew 5.7% from the year-ago value to $84.89 million. Also, the company’s non-GAAP operating income came in at $5.43 million, compared to $428 thousand in the prior year’s quarter.

In addition, the company’s non-GAAP net income and non-GAAP EPS were $37.25 million and $0.60, indicating growth of 19.4% and 17.6% from the prior year’s period, respectively. Its total current assets came in at $785.45 million as of October 31, 2023, compared to $644.65 million as of October 31, 2022.

For the first quarter of fiscal 2024, Photronics anticipated revenue to be between $217 million and $225 million. Also, non-GAAP net income attributable to PLAB shareholders is expected to be between $0.45 and $0.53 per share.

Analysts expect PLAB’s revenue and EPS for the first quarter (ending January 2024) to increase 4.2% and 22.5% year-over-year to $220 million and $0.49, respectively. Further, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.

Over the past month, the stock has gained 33.4% and 58.8% over the past year to close the last trading session at $28.99.

PLAB’s POWR Ratings reflect its bright prospects. The stock has an overall grade of A, translating to a Strong Buy in our proprietary rating system.

PLAB has a B grade for Momentum, Value, and Quality. It is ranked #2 among 91 stocks within the Semiconductor & Wireless Chip industry.

To see the other ratings of PLAB for Growth, Stability, and Sentiment, click here.

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AMAT shares were unchanged in premarket trading Monday. Year-to-date, AMAT has declined -6.68%, versus a 0.29% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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