The semiconductor industry is well-positioned for steady growth with increasing applications of chips across various sectors. The swift integration of advanced technologies and AI has accelerated the growth prospects of several semiconductor companies.
For reasons discussed throughout this article, I think buying fundamentally strong semiconductor stock Broadcom Inc. (AVGO) could be wise. However, Intel Corporation (INTC) and Tokyo Electron Limited (TOELY) are worth watching until they offer attractive entry opportunities.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the chip industry’s prospects.
The semiconductor industry is growing significantly, thanks to government incentives and widespread chip integration in electronics, automotive, and emerging technologies such as AI and the Internet of Things (IoT). Precedence Research forecasts that the global semiconductor market will reach $1.88 trillion by 2032, growing at a CAGR of 12.3%.
Gartner forecasts that AI chip revenue will hit $53.4 billion this year, registering a 20.9% improvement from last year. The surge can be attributed to the growing demand for high-performance GPUs and optimized semiconductor devices for generative AI platforms.
The worldwide semiconductor sales in the third quarter reached $134.70 billion, marking a 6.3% increase over the second quarter of 2023. The global semiconductor sales increased by 3.9% sequentially in October to $46.60 billion. Although global semiconductor sales are projected to decrease 9.4% in 2023, it is expected to increase 13.1% in 2024.
SIA’s President and CEO, John Neuffer, affirmed, “Moving forward, we forecast year-end sales for 2023 will be down compared to 2022, but the global semiconductor market is projected to rebound strongly next year with double-digit growth projected for 2024.”
On top of it, the semiconductor industry is experiencing huge demand and receiving support from government initiatives like the CHIPS and Science Act. This act allocates around $53 billion to enhance semiconductor manufacturing, research, and workforce development in the United States.
Considering these conducive trends, let’s look at the fundamentals of the three Semiconductor & Wireless Chip stocks, beginning with the third from the investment point of view.
Stock #3: Intel Corporation (INTC)
INTC designs, develops, manufactures, markets, and sells computing and related products worldwide. It operates through the Client Computing Group, Data Center and AI, Network and Edge, Mobileye, Accelerated Computing Systems and Graphics, Intel Foundry Services, and other segments.
On November 27, 2023, INTC announced a collaboration with Databricks to integrate Intel Granulate's autonomous, continuous optimization solutions with Databricks' Data Intelligence Platform as part of the Databricks Partner Program.
On September 12, 2023, INTC announced the sale of about 10% of its stake in IMS Nanofabrication to TSMC for $4.3 billion, in addition to a recent 20% sale to Bain Capital. INTC will keep majority ownership, and IMS will function as a standalone subsidiary.
Matt Poirier, Senior VP of Corporate Development at INTC, said, “This investment demonstrates the deep industry collaboration IMS is pioneering to advance critical lithography technology for leading-edge nodes, which will benefit the entire semiconductor manufacturing ecosystem.
In terms of the trailing-12-month EBITDA margin, INTC’s 15.69% is 69.6% higher than the 9.25% industry average. Likewise, the stock’s 47.21% trailing-12-month Capex/Sales is considerably higher than the 2.33% industry average. However, its 38.14% trailing-12-month gross profit margin is 21.6% lower than the industry average of 48.67%.
For the third quarter (ended October 31, 2023), INTC’s net revenue declined 7.7% year-over-year to $14.16 billion. However, its non-GAAP operating income increased 16.3% over the prior-year quarter to $1.92 billion. Also, the company’s non-GAAP net income attributable to INTC and EPS rose 14% and 10.8% year-over-year to $1.74 billion and $0.41, respectively.
Street expects INTC’s EPS and revenue for the quarter ending December 31, 2023, to increase 348% and 7.8% year-over-year to $0.45 and $15.14 billion, respectively. It failed the Street EPS estimates in three of the trailing four quarters. The stock has gained 66.6% year-to-date to close the last trading session at $44.04.
INTC’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #39 out of 91 stocks in the Semiconductor & Wireless Chip industry. It has a C grade for Value, Sentiment, and Quality. Click here to see INTC’s Growth, Momentum, and Stability ratings.
Stock #2: Tokyo Electron Limited (TOELY)
Headquartered in Tokyo, Japan, TOELY and its subsidiaries develop, manufacture, and sell semiconductor and flat panel display (FPD) production equipment internationally. The company's offerings include coaters/developers, etch systems, surface preparation systems, deposition systems, gas cluster ion beam systems, and cleaning systems.
On December 11, 2023, TOELY announced the launch of Ulucus G, a wafer thinning system designed for 300mm wafer fabrication. The system integrates advanced grinding technology, enabling higher flatness in silicon wafers and reducing manpower for mass production while ensuring high-quality fabrication.
On December 11, 2023, TOELY announced the development of Extreme Laser Lift Off (XLO) technology, designed for 3D integration of advanced semiconductor devices using permanent wafer bonding. This innovation simplifies the wafer thinning process, reduces water consumption by over 90%, and aims to contribute to environmental sustainability.
In terms of the trailing-12-month EBIT margin, TOELY’s 24.17% is 406.5% higher than the 4.77% industry average. Its 18.51% trailing-12-month net income margin is 689.3% higher than the 2.35% industry average. However, the stock’s 43.76% trailing-12-month gross profit margin is 10.1% lower than the 48.67% industry average.
TOELY’s net sales for the six months that ended September 30, 2023, decreased 30.7% year-over-year to ¥819.57 billion ($5.63 billion). Likewise, its net income attributable to owners of parent and net income per share of common stock came in at ¥137.49 billion ($944.80 million) and ¥294.12, representing a decrease of 48.6% and 48.3% year-over-year, respectively.
For the quarter ending December 31, 2023, TOELY’s revenue is expected to decrease 14.1% year-over-year to $3.05 billion. The stock has gained 66.3% year-to-date to close the last trading session at $81.07.
TOELY’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Value and Stability. It is ranked #28 in the Semiconductor & Wireless Chip industry. In total, we rate TOELY on eight different levels. Beyond what we stated above, we also have given TOELY grades for Growth, Momentum, Sentiment, and Quality. Get all the TOELY’s ratings here.
Stock #1: Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products worldwide. The company operates in two segments: Semiconductor Solutions and Infrastructure Software.
On November 22, 2023, AVGO announced the completion of its acquisition of VMware, Inc. The focus is on enabling enterprise customers to build and modernize private and hybrid cloud environments, with a particular investment in VMware Cloud Foundation.
Hock Tan, President and CEO of AVGO is excited about the acquisition and emphasizes teamwork between engineering and innovation. He highlighted the shared goal of helping global enterprises adopt secure private and hybrid cloud environments and committed Broadcom to invest in VMware for sustainable growth.
In terms of the trailing-12-month EBIT margin, AVGO's 46.64% is 877.3% higher than the 4.77% industry average. Likewise, its 57.11% trailing-12-month EBITDA margin is 517.5% higher than the 9.25% industry average. Additionally, its 38.17% trailing-12-month levered FCF margin is 353.9% higher than the 8.41% industry average.
For the fiscal fourth quarter, which ended October 29, 2023, AVGO's net revenue increased 4.1% year-over-year to $9.30 billion. Its non-GAAP operating income rose 4.5% year-over-year to $5.75 billion. Its non-GAAP net income rose 5.9% over the prior-year quarter to $4.81 billion.
Also, its non-GAAP EPS came in at $11.06, representing an increase of 5.8% year-over-year. In addition, its adjusted EBITDA rose 5.7% year-over-year to $6.05 billion.
For the quarter ending January 31, 2024, AVGO's EPS and revenue are expected to increase 0.6% and 32.1% year-over-year to $10.39 and $11.78 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 92.6% to close the last trading session at $1,072.28.
AVGO's positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Momentum and Sentiment. It is ranked #14 in the Semiconductor & Wireless Chip industry. To access AVGO's Growth, Value, and Stability ratings, click here.
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AVGO shares fell $0.78 (-0.07%) in premarket trading Wednesday. Year-to-date, AVGO has gained 95.19%, versus a 23.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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