The semiconductor industry is expected to experience long-term growth due to increased chip usage, rising demand for advanced devices, and emerging technologies like artificial intelligence and 5G networks. Therefore, it could be wise to own fundamentally strong chip stocks Photronics, Inc. (PLAB), Nikon Corporation (NINOY) and Cirrus Logic, Inc. (CRUS).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the chip industry.
Technological advancements and AI's increasing use in autonomous vehicles and smart devices have boosted the semiconductor industry, driving increased demand for chips and innovation.
The artificial intelligence chip industry is predicted to reach $372.01 billion by 2032, growing at a 38.2% CAGR. The increasing demand for AI-powered devices and applications across various industries drives this rapid growth. As technology continues to advance, the market for AI chips is expected to expand even further in the coming years.
The global semiconductor market is expected to reach $1.22 trillion by 2032, with a CAGR of 7.7%. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 36.6% returns over the past six months.
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: Photronics, Inc. (PLAB)
PLAB produces and sells photomask products and services crucial for fabricating integrated circuits and Flat Panel Displays (FPDs). The company’s photomasks play a vital role in transferring intricate circuit patterns onto semiconductor wafers and FPD substrates, contributing to advanced manufacturing processes.
PLAB’s trailing-12-month ROTA of 8.70% is 667.3% higher than the industry average of 1.13%. Its trailing-12-month net income margin of 15.34% is 509.3% higher than the industry average of 2.52%.
For the fiscal 2024 first quarter that ended January 28, 2024, PLAB’s revenue increased 2.5% year-over-year to $216.33 million. Its operating income 2.7% rose from the year-ago value to $57.49 million. Also, the company’s non-GAAP net income and non-GAAP EPS grew 22.7% and 20% from the prior year’s period to $29.91 million and $0.48, respectively.
Analysts expect PLAB’s revenue to come in at $932.30 million for the year ending October 2024, up 4.5% year-over-year. Its EPS is expected to grow 5.4% year-over-year to $2.15 for the same period. The stock has gained 58.3% over the past years to close the last trading session at $28.01.
PLAB’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PLAB has an A grade for Momentum and a B for Value and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #15 out of 90 stocks. To see additional POWR Ratings for Growth, Stability and Sentiment for PLAB, click here.
Stock #2: Nikon Corporation (NINOY)
Headquartered in Minato, Japan, NINOY manufactures and sells optical instruments in Japan, North America, Europe, China, Thailand, and internationally. It operates through the Imaging Products Business, Precision Equipment Business, Healthcare Business, Components Business, Industrial equipment, and other segments.
NINOY’s trailing-12-month gross profit margin of 43.26% is 21.1% higher than the industry average of 35.73%. Its trailing-12-month CAPEX / Sales of 4.26% is 40.7% higher than the industry average of 3.03%.
NINOY’s revenue for the nine months that ended December 31, 2023, increased 16% year-over-year to ¥528.91 billion ($3.51 billion). Its operating profit came in at ¥34.44 billion ($228.66 million). Also, the company’s profit for the period and EPS came in at ¥24.97 billion ($165.81 million) and ¥71.72, respectively.
The consensus revenue estimate of $4.58 billion for the year ended March 2024 reflects a 49.9% year-over-year improvement. Shares of NINOY has gained 12.7% over the past three months to close the last trading session at $10.33.
It’s no surprise that NINOY has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Momentum and a B for Stability, Value and Quality. It is ranked #14 in the same industry.
Beyond what is stated above, we’ve also rated NINOY for Growth and Sentiment. Get all NINOY ratings here.
Stock #1: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that engages in developing low-power, high-precision mixed-signal processing solutions. It provides audio products, including codec components, smart codecs, boosted amplifiers, standalone digital signal processors, and SoundClear technology. It sells products via direct sales force and external sales representatives.
CRUS’ trailing-12-month ROTA of 7.94% is 600.5% higher than the 1.13% industry average. Its trailing-12-month ROTC of 10.65% is 350.3% higher than the 2.37% industry average.
For the fiscal 2024 third quarter that ended December 30, 2023, CRUS reported net sales of $618.98 million, up 4.8% year-over-year. The company’s non-GAAP operating profit increased 10.6% from the previous quarter to $192.23 million. Its non-GAAP net income and non-GAAP EPS were $160.63 million and $2.89 per share, up 18.3% and 20.4% from the prior quarter, respectively.
Street expects CRUS’ revenue to come in at $1.73 billion for the year ending March 2024. Its EPS is expected to come in at $6 for the same period. Shares of CRUS have gained 21.4% over the past nine months to close the last trading session at $91.96.
CRUS has an overall B rating, equating to a Buy in our POWR Ratings system.
CRUS’ is ranked #4 in the same industry. It has a B grade for Growth, Value, Momentum, Sentiment and Quality. To see additional CRUS’ ratings for Stability, click here.
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CRUS shares were trading at $93.00 per share on Monday morning, up $1.04 (+1.13%). Year-to-date, CRUS has gained 11.79%, versus a 6.89% 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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