The semiconductor industry is expanding due to favorable government policies and rising demand across sectors. Additionally, technological advancements and the expanding usage of AI benefit the sector.
So, I think chip stocks Intel Corporation (INTC), Park Aerospace Corp. (PKE), and United Microelectronics Corporation (UMC), which are gaining momentum, could be worth buying this month.
According to Gartner, semiconductors designed to execute artificial intelligence (AI) workloads will provide a $53.4 billion revenue opportunity for the semiconductor industry in 2023, a 20.9% rise from 2022.
The global AI chip market is expected to reach $383.70 billion by 2032, growing at a CAGR of 38.2%. This rise in demand will be due to the increased implementation of AI technology in various industries, including healthcare, automotive, and finance. Also, advances in deep learning algorithms and the necessity for high-performance computing are increasing the demand for AI processors.
Furthermore, favorable government policies and investments will likely boost the industry’s profitability and growth. In July 2022, President Biden signed the CHIPS and Science Act into law, giving $53 billion to strengthen the manufacturing of semiconductors, research and development (R&D), and the workforce in the U.S.
According to Precedence Research, the global semiconductor market is expected to reach $1.88 trillion by 2032, with a CAGR of 12.3%. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 26.1% returns over the past six months.
In light of these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: Intel Corporation (INTC)
INTC develops, designs, manufactures, promotes, and distributes computing and associated goods worldwide. It operates in the Client Computing Group; Data Center and AI; Network and Edge; Mobileye; Accelerated Computing Systems and Graphics; Intel Foundry Services; and other segments.
On August 16, 2023, INTC announced that it and Tower Semiconductor (TSEM) have mutually agreed to terminate their previously publicized agreement to acquire TSEM due to the inability to achieve the regulatory clearances required under the merger agreement, dated February 15, 2022, in a timely manner.
INTC’s forward Price/Book of 1.53x is 62.5% lower than the industry average of 4.07x. Its forward Price/Cash Flow of 19.39x is 8.3% lower than the industry average of 21.14x.
INTC’s trailing-12-month EBITDA margin of 16.25% is 79.8% higher than the 9.04% industry average. Its trailing-12-month CAPEX / Sales of 49.04% is significantly higher than the 2.42% industry average.
INTC’s total assets came in at $185.63 billion for the period that ended July 1, 2023, compared to $182.10 billion for the period that ended December 31, 2022. Its total current liabilities came in at $27.18 billion, compared to $32.16 billion for the same period.
The consensus revenue estimate of 58.85 billion for the year ending December 2024 represents a 12.2% increase year-over-year. Its EPS is expected to grow 184.1% year-over-year to $1.80 for the same period. It surpassed EPS estimates in three of the four trailing quarters.
INTC’s shares have gained 49.6% over the past six months to close the last trading session at $38.18. The stock is trading above its 50-day and 200-day moving averages of $34.25 and $30.64, respectively.
INTC’s POWR Ratings reflect this optimistic outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
INTC has a B grade for Sentiment and Momentum. Within the Semiconductor & Wireless Chip industry, it is ranked #52 out of 92 stocks. Click here for the additional POWR Ratings for Value, Growth, Stability, and Quality for INTC.
Stock #2: Park Aerospace Corp. (PKE)
PKE specializes in developing and manufacturing advanced composite materials for the aerospace market in North America, Asia, and Europe. Its offerings include film adhesives, lightning strike protection materials, specialty ablative materials for rocket motors, and materials for radome applications. It also designs and fabricates various composite parts, structures, and assemblies.
PKE’s trailing-12-month Price/Book of 2.38x is 6.6% lower than the industry average of 2.55x.
PKE’s trailing-12-month net income margin of 18.79% is 204.9% higher than the industry average of 6.16%. Its trailing-12-month EBIT margin of 17.09% is 74.4% higher than the 9.80% industry average.
During the fiscal 2024 first quarter ended May 28, 2023, PKE’s sales were $15.55 million, up 21.7%year-over-year. Its gross profit increased 18.1% from the year-ago value to $4.83 million. The company’s adjusted EBITDA grew 18.1% from the prior-year quarter to $3.31 million.
Analysts expect PKE’s EPS to grow 15% per annum over the next five years. The stock has gained 27.3% over the past year to close the last trading session at $13.34. Also, it is trading above its 200-day moving average of $13.30.
It’s no surprise that PKE has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Momentum and Quality. It is ranked #12 in the same industry.
Beyond what is stated above, we’ve also rated PKE for Value, Growth, Stability, and Sentiment. Get all PKE ratings here.
Stock #1: United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry sectors.
UMC’s forward EV/EBIT multiple of 8.25 is 55.7% lower than the industry average of 18.61. Its forward non-GAAP P/E multiple of 9.92 is 57.5% lower than the industry average of 23.36.
UMC’s trailing-12-month ROCE of 26.31% is significantly higher than the industry average of 0.62%. Its trailing-12-month net income margin of 31.60% is significantly higher than the industry average of 2.03%.
For the second quarter that ended March 31, 2023, UMC’s operating revenue amounted to NT$56.30 billion ($1.81 billion), up 3.8% sequentially, while its gross profit increased 5.3% sequentially, to NT$20.25 billion ($651 million). The company’s attributable net income and EPS amounted to NT$15.64 billion ($502 million) and NT$1.27 for the same period, respectively.
Street expects UMC’s revenue to increase 14.4% year-over-year to $7.96 billion for the year ending December 2024. Its EPS is expected to come in at $0.74 for the same period. Over the past year the stock has gained 9.8% to close the last trading session at $7.05.
UMC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #5 in the same industry. It has an A grade for Momentum and a B for Value and Quality. To see additional UMC’s ratings for Growth, Stability and Sentiment, click here.
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INTC shares were trading at $38.11 per share on Friday afternoon, down $0.07 (-0.18%). Year-to-date, INTC has gained 47.07%, versus a 17.68% 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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