Semiconductors are crucial in today’s technology-driven world, powering emerging technologies like AI, IoT, 5G, and electric vehicles (EVs). As industries undergo digital transformation, the demand for advanced semiconductors, essential for efficient data processing, connectivity, and computing power, continues to rise, fueling optimism in the sector's growth.
Hence, as chip demand surges, it could be wise to keep an eye on strong semiconductor stocks Micron Technology, Inc. (MU), GLOBALFOUNDRIES Inc. (GFS), and STMicroelectronics N.V. (STM).
This year, the semiconductor industry faces challenges such as supply chain disruptions, geopolitical tensions, chip shortages, and slower consumer demand, leading to a decline in electronics sales. Despite this, the rising demand for AI chips, high-bandwidth memory, and increased IC sales, along with growth in wafer fabrication capacity, is fueling robust industry expansion and driving strong growth.
The Semiconductor Industry Association reported global sales of $51.30 billion in July 2024, an 18.7% increase year-over-year, signaling a market rebound that is expected to continue through 2024. Furthermore, the global semiconductor market is projected to reach $2.06 trillion by 2032, growing at a CAGR of 14.9%, highlighting significant investment opportunities in advanced chip manufacturing.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Semiconductor & Wireless Chip picks to watch, beginning with the third choice.
Stock #3: Micron Technology, Inc. (MU)
MU designs, develops, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Embedded Business Unit, and Storage Business Unit.
In terms of the trailing-12-month EBITDA margin, MU’s 28.02% is 177.8% higher than the 10.96% industry average. Its 31.48% trailing-12-month Capex / Sales is considerably higher than the 2.12% industry average. On the other hand, the stock’s 0.32x trailing-12-month asset turnover ratio is 48.1% lower than the 0.62x industry average.
For the fiscal third quarter that ended May 30, 2024, MU’s revenue stood at $6.81 billion, up 81.5% year-over-year. Its non-GAAP operating income amounted to $941 million, compared to a non-GAAP operating loss of $1.47 billion in the prior-year quarter.
During the same period, its non-GAAP net income and earnings per share stood at $702 million and $0.62, respectively, compared to non-GAAP net loss and loss per share of $1.57 billion and $1.43 in the year-ago quarter.
Street expects MU’s revenue for the quarter ended August 31, 2024, to increase 91.3% year-over-year to $7.67 billion. Its EPS for the quarter ending February 28, 2024, is expected to rise 401.9% year-over-year to $2.11. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, MU’s stock has declined 34.8% to close the last trading session at $85.43.
MU’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Value, Momentum, Sentiment, and Quality. It is ranked #46 out of 91 stocks in the Semiconductor & Wireless Chip industry. To access MU’s grades for Growth, and Stability, click here.
Stock #2: GLOBALFOUNDRIES Inc. (GFS)
GFS is a semiconductor foundry that provides a range of mainstream wafer fabrication services and technologies worldwide. It manufactures various semiconductor devices, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontrollers, and power management units.
In terms of the trailing-12-month Capex / Sales, GFS’ 12.94% is 510.8% higher than the 2.12% industry average. Likewise, its 11.82% trailing-12-month net income margin is 222.9% higher than the 3.66% industry average. However, the stock’s 26.75% trailing-12-month gross profit income margin is 46.1% lower than the 49.63% industry average.
GFS' net revenue for the second quarter that ended June 30, 2024, was $1.63 billion, representing a decrease of 11.5% year-over-year. Additionally, the company’s non-IFRS net income for the period and non-IFRS EPS decreased 29% and 28.3% over the prior-year quarter to $211 million and $0.38, respectively.
However, its total liabilities and equity as of June 30, 2024, stood at $17.93 billion, compared to $18.04 billion as of December 31, 2023.
For the quarter ending September 30, 2024, GFS’ revenue is expected to decrease 6.9% year-over-year to $1.72 billion. On the other hand, its EPS for the quarter ending March 31, 2025, is expected to increase 9.9% year-over-year to $0.34. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has declined 34.5% year-to-date to close the last trading session at $39.67.
GFS’ POWR Ratings reflect an uncertain outlook. It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has a C grade for Value, Momentum, Stability, Sentiment, and Quality. It is ranked #29 in the same industry. To see GFS’ Growth ratings, click here.
Stock #1: STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM and its subsidiaries design, develop, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, and Sensors Group, and Microcontrollers and Digital ICs Group segments.
In terms of the trailing-12-month EBIT margin, STM’s 21.75% is 341.7% higher than the 4.92% industry average. Its 11.26% trailing-12-month Return on Total Assets is 461.2% higher than the 2.01% industry average. But, the stock’s 42.72% trailing-12-month gross profit margin is 13.9% lower than the 2.33% industry average.
During the second quarter that ended June 30, 2024, STM's net revenues decreased 25.3% year-over-year to $3.47 billion. The company's net income and EPS were $353 million and $0.38, respectively, down 64.8% and 64.2% from the prior-year quarter. Moreover, STM's total assets as of June 30, 2024, stood at $24.91 billion, compared to $24.45 billion as of December 31, 2023.
Analysts expect STM’s EPS for the quarter ending September 30, 2024, to decrease 72% year-over-year to $0.32. Its revenue for fiscal 2025 is expected to rise 11.3% year-over-year to $14.87 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has declined 42.3% to close the last trading session at $27.64.
STM’s uncertain outlook justifies its overall rating of C, which translates to Neutral in our proprietary rating system.
It is ranked #15 in the Semiconductor & Wireless Chip industry. It has a C grade for Momentum, Stability, and Sentiment. Click here to see the additional ratings of STM for Growth, Value, and Quality.
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MU shares were trading at $86.57 per share on Tuesday afternoon, up $0.30 (+0.35%). Year-to-date, MU has gained 1.63%, versus a 16.09% 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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