The semiconductor industry’s long-term growth prospects remain optimistic because of the increasing use of chips in powering technological advancements. Given the industry’s growth prospects, fundamentally strong chip stocks QUALCOMM Incorporated (QCOM), Tower Semiconductor Ltd. (TSEM) and ChipMOS TECHNOLOGIES INC. (IMOS) might be worth buying.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the chip industry.
The Semiconductor Industry Association (SIA) reported that global semiconductor industry sales totaled $48 billion in November 2023, up 5.3% from $45.6 billion in November 2022 and 2.9% from the October 2023 total of $46.6 billion.
This increase in sales can be attributed to the rising demand for semiconductors in a variety of industries, including automotive, consumer electronics, and telecommunications. The increase in sales reflects continued technical advances and the demand for advanced semiconductor chips to power these devices.
The global AI chip market is expected to reach $383.70 billion by 2032, growing at a 38.2% CAGR. The rapid growth of the AI chip market can be attributed to the increasing adoption of artificial intelligence in various industries such as healthcare, automotive, and manufacturing.
The global semiconductor market is expected to reach $1.30 trillion by 2032, with a CAGR of 8%. Moreover, investors’ interest in chip stocks is evident from the Invesco Dynamic Semiconductors ETF (PSI) 21.1% 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: 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 trailing-12-month non-GAAP P/E of 15.35x is 34.3% lower than the industry average of 23.36x. Its trailing-12-month EV/EBIT of 12.95x is 35.8% lower than the industry average of 20.15x.
QCOM’s trailing-12-month ROCE of 37.07% is significantly higher than the industry average of 1.67%. Its 14.17% trailing-12-month ROTA is significantly higher than the 0.60% industry average.
QCOM’s total revenues for the fiscal fourth quarter that ended on September 24, 2023, amounted to $8.63 billion, while the company’s net income and EPS came in at $1.49 billion and $1.44, respectively. Moreover, during the same period, QCOM’s total current assets amounted to $22.46 billion, up 8.4% compared to $20.72 billion as of September 25, 2022.
Street expects QCOM’s revenue to increase 5.8% year-over-year to $37.91 billion for the year ending September 2024. Its EPS is expected to grow 9.2% year-over-year to $9.21 for the same period. It surpassed EPS estimates in three of four trailing quarters. QCOM’s shares have gained 24.2% over past three months to close the last trading session at $139.32.
QCOM’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.
QCOM has a B grade for Sentiment and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #10 out of 91 stocks. To see additional POWR Ratings for Growth, Value, Stability and Momentum for QCOM, click here.
Stock #2: Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSEM is an independent semiconductor foundry, focusing on specialty process technologies to manufacture analog intensive mixed-signal semiconductor devices internationally. It provides various customizable process technologies, a design enablement platform for quick and accurate design cycles, as well as transfer optimization and development process services.
TSEM’s forward non-GAAP PEG of 0.98x is 51.4% lower than the industry average of 2.01x. Its forward Price/Sales of 2.24x is 21.3% lower than the industry average of 2.84x.
TSEM’s trailing-12-month net income margin of 37.17% is significantly higher than the industry average of 1.94%. Its trailing-12-month ROCE of 26.72% is significantly higher than the industry average of 1.67%.
In the fiscal third quarter, which ended on September 30, 2023, TSEM’s revenues amounted to $358.17 million, while its operating profit increased 357.2% year-over-year to $362.16 million.
The company’s net profit and EPS came in at $342.05 million and $3.07, up 394.8% and 395.2% from the prior-year quarter, respectively. Furthermore, during the same period, TSEM’s total current assets stood at $1.72 billion, up 19.4% compared to $1.44 billion as of June 30, 2022.
Analysts expect TSEM’s revenue to come in at $1.40 billion for the year ending December 2024. Its EPS is expected to come in at $2.04 for the same period. The stock has gained 31.3% over the past three months to close the last trading session at $28.86.
It’s no surprise that TSEM 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 Value, Sentiment and Quality. It is ranked #8 in the same industry.
Beyond what is stated above, we’ve also rated TSEM for Growth and Stability. Get all TSEM ratings here.
Stock #1: ChipMOS TECHNOLOGIES INC. (IMOS)
Headquartered in Hsinchu, Taiwan, IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits, and related assembly and testing services.
IMOS’ forward EV/Sales of 1.68x is 40.2% lower than the industry average of 2.81x. Its forward EV/EBITDA of 5.45x is 64.8% lower than the industry average of 15.50x.
IMOS’ trailing-12-month CAPEX / Sales of 16.48% is 593.4% higher than the 2.38% industry average. Its trailing-12-month ROTA of 3.62% is 499.9% higher than the 0.60% industry average.
For the fiscal third quarter, which ended on September 30, 2023, IMOS’ revenue increased 6.2% year-over-year to NT$5.58 billion ($177.84 million), while its gross profit rose 9.5% from the year-ago value to NT$889.08 million ($28.34 million).
The company’s attributable net profit and EPS came in at NT$580.60 million ($18.50 million) and NT$0.80, respectively. In addition, its operating profit grew 22.7% from the prior-year quarter to NT$487.15 million ($15.53 million).
The consensus revenue estimate of $761.20 million for the year ending December 2024 reflects a 11.6% rise year-over-year. The stock has gained 20.2% over the past year to close the last trading session at $26.92.
IMOS has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
IMOS’ is ranked #2 in the same industry. It has an A grade for Momentum and a B for Growth, Value and Stability. To see additional IMOS’ ratings for Sentiment and Quality, click here.
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QCOM shares were trading at $143.71 per share on Thursday afternoon, up $4.39 (+3.15%). Year-to-date, QCOM has declined -0.64%, versus a -0.37% 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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