Demand for chips is soaring across wireless, wired, and power markets, driven by explosive growth in high-performance analog, connectivity, and advanced cellular technologies. In this thriving environment, fundamentally strong semiconductor stocks like Qorvo, Inc. (QRVO) and Cirrus Logic, Inc. (CRUS) could be wise portfolio additions in September.
The semiconductor industry thrives due to rising demand in key sectors like PCs, communications, automotive, and industrial automation. As these industries grow, they need more advanced chips, making the sector a strong investment opportunity. The Semiconductor Industry Association (SIA) reported global semiconductor sales of $149.90 billion in Q2 2024, an 18.3% increase year-over-year.
This year, the semiconductor market is expanding due to innovations in consumer electronics and commercial tech. The surge in demand for IoT devices, 5G networks, and cutting-edge technologies is fueling the growth of low-power chips, high-speed modems, AI accelerators, and high-bandwidth memory. By 2032, the U.S. aims to triple its semiconductor manufacturing capacity, a 203% increase from 2022.
Moreover, Statista predicts that the semiconductor market will reach $607.40 billion in revenue this year, with a 10.1% CAGR. Investors’ interest in chip stocks is evident from the VanEck Semiconductor ETF’s (SMH) 44.2% returns over the past year. Considering these conducive trends, let’s analyze the fundamental aspects of the two Semiconductor & Wireless Chip picks, beginning with the second choice.
Stock #2: Qorvo, Inc. (QRVO)
QRVO engages in the development and commercialization of technologies and products for wireless, wired, and power markets worldwide. It operates through three segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG), and Advanced Cellular Group (ACG).
In terms of the trailing-12-month EBIT margin, QRVO’s 11.12% is 127.3% higher than the 4.89% industry average. Likewise, its 4.92% trailing-12-month Return on Total Capital is 84.5% higher than the 2.67% industry average. Additionally, its 19.06% trailing-12-month levered FCF margin is 80.5% higher than the 10.56% industry average.
QRVO’s non-GAAP revenue for the first quarter, which ended on June 29, 2024, increased 36.2% year-over-year to $886.67 million, and its adjusted gross profit grew 29.8% from the year-ago value to $362.70 million.
For the same quarter, its non-GAAP operating income stood at $98.13 million, up 110.1% year-over-year. The company’s non-GAAP net income amounted to $83.52 million, or $0.87 per share, up 148.5% and 155.9% year-over-year, respectively.
Street expects QRVO’s EPS and revenue for the quarter ending March 31, 2025, to increase 6.8% and 2.9% year-over-year to $1.48 and $968.46 million, respectively. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 11% to close the last trading session at $108.11.
QRVO’s promising outlook is reflected in its POWR Ratings. It 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.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #5 out of 90 stocks in the Semiconductor & Wireless Chip industry. Beyond what we stated above, we also have given QRVO grades for Value, Momentum, and Stability. Get all the QRVO’s ratings here.
Stock #1: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that develops low-power, high-precision mixed-signal processing solutions both domestically and internationally. The company provides audio solutions, including integrated audio components, smart codecs, amplifiers, DSPs, and SoundClear technology for enhanced user experiences.
On June 25, 2024, CRUS launched new digital-to-analog converters (DACs) and an ultra-high-performance audio CODEC designed for superior audio fidelity. These products aim to enhance recording and playback quality for musicians, live entertainers, and recording engineers, continuing the company’s commitment to high-performance audio solutions.
In terms of the trailing-12-month Return on Common Equity, CRUS’ 17.18% is 276.9% higher than the 4.56% industry average. Likewise, its 12.31% trailing-12-month Return on Total Capital is 361.3% higher than the 2.67% industry average. Moreover, its 0.85x trailing-12-month asset turnover ratio is 36.7% higher than the 0.62x industry average.
During the fiscal first quarter that ended on June 29, 2024, CRUS reported net sales of $374.03 million, up 18% year-over-year. Likewise, its income from operations grew 163% from the year-ago value to $46.79 million.
In addition, the company’s non-GAAP net income and non-GAAP EPS were $62.37 million and $1.12, respectively, representing growth of 64% and 67.2% over the prior-year quarter.
Analysts expect CRUS’ EPS for the quarter ending September 30, 2024, to increase 12.4% year-over-year to $2.02, and its revenue for the same quarter is expected to increase 8.2% year-over-year to $520.51 million. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 80.5% to close the last trading session at $137.47.
It’s no surprise that CRUS has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked first in the Semiconductor & Wireless Chip industry. It has a B grade for Value, Sentiment, and Quality. Click here to see CRUS’s ratings for Growth, Momentum, and Stability.
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.
QRVO shares were trading at $108.29 per share on Wednesday afternoon, up $0.18 (+0.17%). Year-to-date, QRVO has declined -3.84%, versus a 16.57% 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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