In the modern age, chips are frequently referred to as the 'new oil' because of their crucial significance across various sectors such as automotive, consumer electronics, and defense. Furthermore, the infusion of government funds to bolster national security further augments optimism for the industry's prospects.
Against the backdrop, scooping up the shares of three fundamentally solid semiconductor stocks, QUALCOMM Incorporated (QCOM), Tower Semiconductor Ltd. (TSEM), and ChipMOS TECHNOLOGIES INC. (IMOS) might lead to potential gains.
Despite confronting persistent challenges stemming from current macroeconomic conditions that impose short-term pressures on the sector, the semiconductor industry is anticipated to rebound strongly in the upcoming year.
For instance, despite a projected 9.4% decline in annual global sales in 2023, World Semiconductor Trade Statistics (WSTS) forecasts the semiconductor industry’s global sales to climb to $588.40 billion, marking a 13.1% year-over-year increase in 2024.
Meanwhile, the latest data from the Semiconductor Industry Association (SIA) revealed a 3.9% uptick in global semiconductor industry sales, reaching $46.60 billion in October 2023, compared to $44.90 billion recorded in September 2023.
“The global semiconductor market grew on a month-to-month basis for the eighth consecutive time in October, demonstrating clear, positive momentum for chip demand as 2023 winds down,” said John Neuffer, SIA president and CEO.
Neuffer anticipates a decline in year-end sales for 2023 compared to 2022. Nonetheless, he projects a strong rebound in the global semiconductor market, with double-digit growth expected for 2024.
Substantial government contributions further underscore the industry's promising future. Last year, President Biden enacted the CHIPS and Science Act (CHIPS), which aims to enhance American competitiveness, fortify U.S. supply chains, and support national security along with access to crucial technologies.
Within the year following the enactment of CHIPS into law, companies have revealed investments exceeding $166 billion in semiconductor and electronics manufacturing. Additionally, since the commencement of the Biden-Harris Administration, companies have declared commitments totaling over $231 billion in semiconductor and electronics investments in the United States.
Therefore, given the anticipation of a strong rebound in global semiconductor sales in the upcoming year, coupled with government support, adopting a bullish stance on QCOM, TSEM, and IMOS could be beneficial.
That said, let us dive deeper into the fundamentals of these Semiconductor & Wireless Chip stocks, beginning with number three:
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).
On December 14, QCOM paid its shareholders a quarterly dividend of $0.80. The company’s annual dividend of $3.20 translates to a 2.31% yield on the prevailing prices, while its four-year average dividend yield is 2.29%.
Its dividend payouts have grown at CAGRs of 7% and 5.3% over the past three and five years, respectively. Also, QCOM has a record of 20 years of consecutive dividend growth.
On September 11, QCOM entered into an agreement with Apple Inc. (AAPL) to provide Snapdragon® 5G Modem-RF Systems for the release of smartphones in 2024, 2025, and 2026. This collaboration underscores QCOM’s consistent leadership in the realm of 5G technologies and products.
QCOM’s total revenues for the fiscal fourth quarter (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.
The consensus revenue estimate of $9.48 billion for the fiscal first quarter (ending December 2023) reflects a marginal rise year-over-year. Meanwhile, the consensus EPS estimate for the same quarter is $2.35. Moreover, the company topped its EPS estimates in three of the trailing four quarters, which is promising.
The stock surged 28.7% year-to-date to close the last trading session at $141.50.
QCOM’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to 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 Value, Momentum, and Quality. In the 91-stock Semiconductor & Wireless Chip industry, it is ranked #13. Click here to see QCOM’s ratings for Growth, Stability, and Sentiment.
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.
On September 11, TSEM and Fortsense, a pioneer in LiDAR SPAD technology solutions and ICs, jointly announced the successful development of an advanced 3D imager designed for LiDAR applications utilizing dToF technology. The newly unveiled product, FL6031, is built upon TSEM’s 65nm Stacked BSI CIS platform with pixel-level hybrid bonding.
This product aims to meet the demands of various depth-sensing applications across the automotive, consumer, and industrial sectors. With Yole Group projecting the market for 3D imaging, sensors, and systems to hit $17 billion by 2028, this innovation will likely prove advantageous for both companies.
In the same month, TSEM partnered with InnoLight Technology, a leading player in data center optics. This collaboration is aimed at developing advanced high-speed optical transceivers using TSEM’s Silicon Photonics process platform (PH18).
With production already in progress, this strategic partnership is anticipated to deliver state-of-the-art solutions to meet the escalating requirements of AI, data centers, and the evolving landscape of next-generation telecom networks.
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 predict TSEM’s revenue and EPS for the fourth quarter (ending December 2023) to come in at $350 million and $0.52, respectively. Moreover, its EPS is projected to improve by 15% per annum over the next five years.
The company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
Over the past month, TSEM’s shares surged 19.7% to close the last trading session at $30.49.
TSEM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #9. Click here to see the other ratings of TSEM for Growth and Stability.
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.
On December 8, IMOS reported an impressive 20.3% year-over-year increase for its unaudited consolidated revenue for the month of November 2023. The revenue for the month of November 2023 amounted to NT$1.87 billion ($59.60 million), indicating a slight 4.9% decrease from October 2023 but a substantial 20.3% increase from November 2022.
Despite the ongoing impact of general market softness, the company highlighted that it is concurrently experiencing positive effects from enhanced inventory stabilization and a rebound in demand, particularly in certain markets such as its memory products.
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).
Street expects IMOS’ revenue for the fiscal fourth quarter (ending December 2023) to increase 12.4% year-over-year to $27.63 million. Meanwhile, its EPS is projected to improve by 10% annually over the next five years. Also, the company surpassed its revenue estimates in three of the trailing four quarters, which is impressive.
IMOS’ shares have surged 28.9% year-to-date to close the last trading session at $27.63.
It’s no surprise that IMOS has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Momentum and a B for Growth, Value, Stability, and Sentiment. In the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have IMOS’ rating for Quality. Get all IMOS ratings here.
What To Do Next?
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QCOM shares rose $0.11 (+0.08%) in premarket trading Friday. Year-to-date, QCOM has gained 32.25%, versus a 24.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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