The global semiconductor market is expected to grow due to rising consumer demand, technological advancements, and increased investment. Given the industry’s growth prospects, fundamentally strong semiconductor stocks Sumco Corporation (SUOPY), STMicroelectronics N.V. (STM) and QUALCOMM Incorporated (QCOM) could be ideal buys for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the semiconductor industry.
The global AI chip market is transforming the semiconductor industry by improving data processing and analysis, attracting investment in cutting-edge chips for complex computations and machine learning. The AI chip market is expected to reach $372.01 billion by 2032, growing at a 38.2% CAGR.
The global semiconductor market is expected to reach $908.92 billion by 2030, with a CAGR of 8.7%. The semiconductor market is crucial for modern technological advancements, powering electronic devices like smartphones, computers, and automotive systems.
It's driven by demand for faster, smaller, and more efficient devices, technological advancements, IoT devices, and data-driven applications, ensuring the growth of the industry.
Moreover, investors’ interest in chip stocks is evident from the Invesco Dynamic Semiconductors ETF’s (PSI) 37% returns over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the three Semiconductor & Wireless Chip stocks, starting with number 3.
Stock #3: Sumco Corporation (SUOPY)
Based in Tokyo, Japan, SUOPY manufactures and sells silicon wafers for the semiconductor industry globally, offering a diverse range of products. Its product range includes monocrystalline ingots and various processed wafers, serving diverse semiconductor needs.
SUOPY’s forward EV/Sales of 2x is 31.4% lower than the industry average of 2.92x. Its forward Price/Sales of 1.84x is 36.4% lower than the industry average of 2.90x.
SUOPY’s trailing-12-month CAPEX / Sales of 49.27% is significantly higher than the industry average of 2.35%. Its trailing-12-month ROTA of 7.51% is significantly higher than the industry average of 0.43%.
In the nine months that ended September 30, 2023, SUOPY’s net sales stood at ¥320.85 billion ($2.18 billion). The company reported operating income of ¥61.86 billion ($419.39 million). Its net income grew 7.9% year-over-year to ¥65.76 billion ($445.83 million). As of September 30, 2023, its total assets amounted to ¥1.03 trillion ($6.98 billion).
Analysts expect SUOPY’s revenue to increase 7.6% year-over-year to $3.11 billion for the year ending December 2024. The stock has gained 22% over the past three months to close the last trading session at $31.05.
SUOPY’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.
SUOPY has an A grade for Stability and a B for Value and Momentum. Within the Semiconductor & Wireless Chip industry, it is ranked #16 out of 91 stocks. To see additional POWR Ratings for Growth, Sentiment and Quality for SUOPY, click here.
Stock #2: STMicroelectronics N.V. (STM)
Based in Geneva, Switzerland, STM designs, manufactures, and markets semiconductor products. Its segments include Automotive and Discrete Group; Analog, MEMS, and Sensors Group; and Microcontrollers and Digital ICs Group. The company caters to automotive, industrial, personal electronics, and communications equipment markets.
STM’s trailing-12-month EV/Sales of 2.27x is 22.2% lower than the industry average of 2.92x. Its forward EV/EBIDTA of 7.42x is 52.8% lower than the industry average of 15.71x.
STM’s trailing-12-month ROTA of 17.22% is significantly higher than the industry average of 0.43%. Its 24.36% trailing-12-month net income margin is significantly higher than the 1.96% industry average.
For the fourth quarter that ended December 31, 2023, STM’s net revenues came in at $4.28 billion. Its gross profit amounted to $1.95 billion.
Also, as of December 31, 2023, the company’s current assets came in at $11.81 billion, compared to $9.81 billion as of December 31, 2022. In addition, its total assets amounted to $24.45 billion, up from $19.98 billion as of December 31, 2022.
Street expects STM’s revenue to come in at $16.12 billion for the year ending December 2024. Its EPS is expected to come in at $3.02 for the same period. It surpassed EPS estimates in three of four trailing quarters. STM’s shares have gained 10.2% over past three months to close the last trading session at $45.17.
It’s no surprise that STM has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality. It is ranked #8 in the same industry.
Beyond what is stated above, we’ve also rated STM for Growth, Stability, Sentiment and Momentum. Get all STM ratings here.
Stock #1: QUALCOMM Incorporated (QCOM)
QCOM engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
QCOM’s forward non-GAAP P/E of 15.42x is 39.4% lower than the industry average of 25.44x. Its forward EV/EBIT of 13.22x is 36.5% lower than the industry average of 20.83x.
QCOM’s trailing-12-month ROCE of 37.63% is significantly higher than the industry average of 1.58%. Its 14.89% trailing-12-month ROTA is significantly higher than the 0.43% industry average.
QCOM’s total revenues for the fiscal first quarter that ended on December 24, 2023, amounted to $9.94 billion, increased 5% year-over-year, while the company’s net income and EPS came in at $2.77 billion and $2.50, increased 23.7% and 24.4% respectively. Its operating income increased 18.8% year-over-year to $2.93 billion for the same period.
The consensus revenue estimate of $37.99 billion for the year ending September 2024 reflects a 6% rise year-over-year. Its EPS is expected to grow 14% year-over-year to $9.61 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 36.8% over the past nine months to close the last trading session at $148.18.
QCOM has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
QCOM’s is ranked #4 in the same industry. It has a B grade for Value, Sentiment and Quality. To see additional QCOM’s ratings for Momentum, Growth and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
QCOM shares were trading at $150.04 per share on Friday afternoon, up $1.86 (+1.26%). Year-to-date, QCOM has gained 3.74%, versus a 5.22% 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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