Semiconductors play a vital role in today's technology-driven world, with their applications expanding across various sectors. Additionally, the rising adoption of emerging technologies such as artificial intelligence (AI) will fuel the semiconductor industry’s growth.
Amid this backdrop, it could be wise to add fundamentally strong semiconductor stocks Trio-Tech International (TRT), Nikon Corporation (NINOY), and Tower Semiconductor Ltd. (TSEM) to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the semiconductor industry is well-positioned for growth.
The semiconductor industry plays vital roles in consumer electronics, automotive, healthcare, telecommunications, data centers, and defense. Despite a decline of 8.2% in worldwide semiconductor sales to $526.8 billion in 2023, conditions improved in the second half of the year.
The industry is also seeing a surge in demand for advanced chips due to AI adoption and steady growth in automotive chip demand, which are now driving the rebound in global chip sales. The Semiconductor Industry Association (SIA) forecasts global chip sales to grow by 13.1% in 2024 to $595.3 billion, fueled by rising demand for artificial intelligence (AI) and automotive chips.
SIA’s President and CEO, John Neuffer, said, “Global semiconductor sales were sluggish early in 2023 but rebounded strongly during the second half of the year, a trend we expect to continue in 2024. With chips playing a larger and more important role in countless products the world depends on, the long-term outlook for the semiconductor market is extremely strong.”
According to Gartner, global semiconductor revenue this year is projected to grow 16.8% in 2024 to $624 billion. Revenue for all chip types is expected to experience a bounce-back this year. Precisely, the worldwide memory market is forecasted to see double-digit growth.
The industry is embracing nanotechnology and new materials to enhance chip quality. Additionally, there's a surge in demand for high-performance GPUs for generative AI and large language models.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Semiconductor & Wireless Chip picks, beginning with the third choice.
Stock #3: Trio-Tech International (TRT)
TRT and its subsidiaries offer manufacturing, testing, and distribution services to the semiconductor industry. It operates through four segments: Manufacturing, Testing Services, Distribution, and Real Estate.
In terms of the trailing-12-month EBITDA margin, TRT’s 16.62% is 85.6% higher than the 8.96% industry average. Its 2.16% trailing-12-month net income margin is 13.7% higher than the 1.90% industry average. Likewise, the stock’s 8.28% trailing-12-month Capex/Sales is 252.6% higher than the 2.35% industry average.
For the fiscal first quarter that ended September 30, 2023, TRT’s revenues came in at $9.97 million. Likewise, the company’s net income attributable to TRT and EPS came in at $207 thousand and $0.05, respectively. In addition, as of September 30, 2023, the company’s current assets stood at $32.35 million, compared to $28.83 million as of June 30, 2023.
Over the past nine months, TRT’s stock has gained 15.8% to close the last trading session at $5.05.
TRT’s strong fundamentals are 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 an A grade for Value and Momentum and a B for Sentiment. It is ranked #15 out of 91 stocks in the Semiconductor & Wireless Chip industry. To access TRT’s grades for Growth, Stability, and Quality, 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.
On January 25, 2024, NINOY announced the establishment of new research hubs, the Nikon BioImaging Lab Lexington in Massachusetts, USA, and the Nikon Healthcare R&D Center in Shonan, Japan, focusing on drug discovery support and innovation.
These facilities aim to provide advanced technologies, including AI-enhanced image processing, spatial omics, and 3D cell culture systems, to drive efficient drug discovery efforts worldwide.
On January 9, 2024, NINOY announced a collaboration with AFP to verify the implementation of an image provenance function in Nikon cameras, aiming to enhance image authenticity and streamline fact-checking processes, with plans to incorporate electronic watermarking technology to improve reliability in news photography.
In terms of the trailing-12-month Capex/Sales, NINOY’s 4.29% is 39.9% higher than the 3.06% industry average. Likewise, its 44.57% trailing-12-month gross profit margin is 25.8% higher than the 35.44% industry average. Furthermore, the stock’s 5.34% trailing-12-month net income margin is 14.7% higher than the 4.66% industry average.
NINOY’s revenue for the six months that ended September 30, 2023, increased 14.9% year-over-year to ¥331.30 billion ($2.23 billion). Its gross profit rose 7.5% over the prior-year quarter to ¥142.07 billion ($957.64 million). Also, the company’s profit for the period and EPS came in at ¥9.33 billion ($62.89 million) and ¥28.15, respectively.
For the quarter ending June 30, 2024, NINOY’s revenue is expected to increase 0.9% year-over-year to $1.11 billion. Over the past three months, the stock has gained 5.7% year-to-date to close the last trading session at $9.89.
NINOY’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 a B grade for Value, Momentum, and Stability. It is ranked #13 in the same industry. To see NINOY’s Growth, Sentiment, and Quality ratings, click here.
Stock #1: Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry that manufactures and markets analog-intensive mixed-signal semiconductor devices in the United States, Japan, other Asian countries, and Europe.
On January 16, 2024, TSEM announced a collaboration with Renesas to manufacture SiGe-based beamforming ICs for Satcom, 5G, and Aerospace & Defense applications, leveraging TSEM’s SiGe BiCMOS technology. The partnership positions Renesas as a market leader with design wins and volume shipments, addressing the growing demand for millimeter-wave technology.
In terms of the trailing-12-month EBIT margin, TSEM’s 16.36% is 249.2% higher than the 4.69% industry average. Likewise, its 26.72% trailing-12-month Return on Common Equity is significantly higher than the industry average of 1.46%. Its 33.02% trailing-12-month Capex/Sales is considerably higher than the industry average of 2.35%.
TSEM’s revenues for the third quarter that ended September 30, 2023, came in at $358.17 million, while its gross profit came in at $86.87 million. The company’s operating profit increased 357.2% over the prior-year quarter to $362.16 million.
Moreover, its net profit attributable to the company rose 394.8% year-over-year to $342.06 million. Its EPS came in at $3.07, representing an increase of 395.2% year-over-year.
Analysts expect TSEM’s EPS for the quarter ending June 30, 2024, is expected to increase 3.1% year-over-year to $0.50. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 20.2% to close the last trading session at $28.90.
TSEM’s POWR Ratings reflect solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #7 in the Semiconductor & Wireless Chip industry. It has a B grade for Value, Momentum, Sentiment, and Quality. Click here to access the additional ratings of TSEM for Growth and Stability.
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NINOY shares were trading at $10.08 per share on Wednesday afternoon, up $0.19 (+1.87%). Year-to-date, NINOY has gained 2.60%, versus a 4.76% 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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