While the global chip shortage has been affecting the production of several industries since last year, global semiconductor sales have increased in the third quarter. According to the Semiconductor Industry Association (SIA), worldwide sales of semiconductors increased 27.6% year-over-year and 7.4% sequentially to $144.8 billion in the third quarter of 2021. Investors’ increased interest in the semiconductor industry is evident in SPDR S&P Semiconductor ETF’s (XSD) 22.7% gains over the past month versus the SPDR S&P 500 ETF’s (SPY) 7.5% returns over this period.
The demand for semiconductor chips is expected to continue growing due to the mainstream adoption of the internet of things (IoT), 5G, artificial intelligence (AI), and electric vehicles (EVs). In addition, most companies in this space are ramping up their production to meet the rising demand. According to The Expresswire report, the global IoT Chip market size is estimated to reach $12.64 billion by 2026, growing at a 7.5% CAGR.
So, we think it could be wise to bet on quality chip stocks Allegro MicroSystems, Inc. (ALGM), MaxLinear, Inc. (MXL), and Nova Ltd. (NVMI). These stocks are rated A (Strong Buy) or B (Buy) in our proprietary POWR Ratings system.
Click here to checkout our Semiconductor Industry Report for 2021
Allegro MicroSystems, Inc. (ALGM)
ALGM designs, develops, manufactures, and markets sensor integrated circuits (ICs) and application-specific analog power ICs for motion control and energy-efficient systems. It primarily operates in the USA, Europe, Japan, Greater China, South Korea & Asian markets. ALGM is based in Manchester, N.H.
On November 3, 2021, ALGM expanded its automotive lighting portfolio to include two new advanced driver assistance system applications offerings. Mark Gaboriault, Product Line Director for Regulators and Lighting at Allegro, said, “The A80803 gives headlight designers a compact, cost-effective solution that automatically manages the electrical transition from low to high beam, without the need for multiple LED drivers and local microcontrollers. It’s a unique offering that will help democratize headlight design and help increase driver safety.”
ALGM’s total net sales increased 41.7% year-over-year to $193.61 million in its fiscal year 2022 second quarter, ended September 24, 2021. Its gross profit came in at $102.53 million, up 66% year-over-year. The company’s net income was $33.19 million, up 246.3% year-over-year.
Analysts expect ALGM’s revenue and EPS to increase 27.9% and 65.2%, respectively, year-over-year to $756.37 million and $0.76in fiscal 2022. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 44.2% in price to close Friday’s trading session at $32.97.
ALGM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ALGM has an A grade for Sentiment, and a B grade for Growth, Momentum, and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #8 of 102 stocks. Click here to see ALGM’s ratings for Value and Stability as well.
MaxLinear, Inc. (MXL)
Carlsbad, Calif.-based MXL provides radiofrequency, high-performance analog, and mixed-signal communications systems-on-chip solutions for the connected home, wired, and wireless infrastructure and industrial and multi-market applications worldwide.
On November 3, 2021, MXL inaugurated its power management integrated circuit, the XR77103-MoCA, which is designed to meet MaxLinear MxL370x MoCA 2.0's power needs. James Lougheed, Vice President of High-Performance Analog products, said, “The MxL7310 was the world’s first fully-integrated circuit to support the multi-gigabit MoCA 2.5 standard. With the XR77103-MoCA PMIC, MaxLinear provides the same level of integration and performance to the power supply.”
For its fiscal year 2021, the third quarter, ended September 30, 2021, MXL’s net revenue increased 46.7% year-over-year to $229.77 million. The company’s gross profit increased 96% year-over-year to $129.79 million. Its net income came in at $9.26 million, compared to a $36.65 million net loss. Also, its EPS came in at $0.12, compared to a $0.50 loss per share in the year-ago period.
MXL’s revenue is expected to be $889.30 million for its fiscal year 2021, representing an 85.8% year-over-year rise. Furthermore, its EPS is estimated to grow 203.4% in the current year to $2.67. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 114.9% in price to close Friday’s trading session at $68.67.
It is no surprise that MXL has an overall B rating, which equals a Buy in our proprietary rating system. In addition, it has a B grade for Growth and Momentum.
MXL is ranked #38 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for MXL (Value, Stability, Sentiment, and Quality).
Nova Ltd. (NVMI)
Headquartered in Rehovot, Israel, NVMI designs, develops, and sells process control systems used to manufacture semiconductors in Israel, Taiwan, the United States, China, Korea, and internationally.
On September 30, 2021, NVMI announced that a leading global integrated circuits manufacturer recently ordered an additional ELIPSON platform for the high-volume manufacturing of advanced memory devices. Eitan Oppenhaim, Nova’s president and CEO, stated, “We are encouraged by our customers’ reactions to our new Raman solution, which is supporting our strategic goal to establish the materials metrology portfolio as one of our key growth engines in 2022.”
NVMI’s total revenues increased 62.2% year-over-year to $112.71 million for its fiscal third quarter, ended September 30, 2021. Its operating income came in at $35.53 million, representing a 128.8% year-over-year rise. Its net income was $30.34 million, up 118.3% year-over-year. Also, its EPS increased 112.5% year-over-year to $1.02.
For its fiscal year 2022, analysts expect NVMI’s revenue and EPS to increase 15.1% and 6.8%, respectively, year-over-year to $475 million and $4.07. Over the past six months, the stock has gained 56.1% to close Friday’s trading session at $131.78.
NVMI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has a B grade for Growth, Quality, Momentum, and Sentiment.
Click here to see NVMI’s rating for Value and Stability. NVMI is ranked #51 in the Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
ALGM shares were trading at $32.98 per share on Monday afternoon, up $0.01 (+0.03%). Year-to-date, ALGM has gained 23.71%, versus a 26.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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