3 Semiconductor Stocks Shifting Gears for Success The ongoing expansion in the semiconductor industry is driven by the escalating chip requirements from different sectors, significant technological advancements, and massive government investments. Given this backdrop, quality semiconductor stocks...
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The ongoing expansion in the semiconductor industry is driven by the escalating chip requirements from different sectors, significant technological advancements, and massive government investments. Given this backdrop, quality semiconductor stocks Broadcom Inc. (AVGO), Cirrus Logic (CRUS), and Qorvo (QRVO), poised for success, could be wise portfolio additions now. Read now….
Amid the ceaseless technological advancements, the growing appetite for advanced and efficient chips sets the stage for the semiconductor industry's notable expansion. Given this backdrop, investors may wish to consider quality chip stocks Broadcom Inc. (AVGO), Cirrus Logic, Inc. (CRUS), and Qorvo, Inc. (QRVO), demonstrating exceptional resilience.
Semiconductors are emerging as pivotal components, influencing the potential of industries like consumer electronics, healthcare, automotive, telecommunication, data centers, and defense. Their relevance is highlighted by historical highs in sales seen last year, which prevailed despite a temporary slump in the latter half of 2022.
The Semiconductor Industry Association (SIA) unveiled that global semiconductor sales in September 2023 increased 1.9% month-over-month and totaled $134.7 billion during the third quarter of 2023, a 6.3% increase compared to the second quarter of 2023. The industry is anticipated to proliferate over the forthcoming decade. The global semiconductor market is expected to grow at a CAGR of 8% to reach $1.30 trillion by 2032.
Increased use of AI-integrated devices and applications contributes significantly to the growth of the wireless chipset market. The widespread incorporation of AI algorithms and ML techniques in various devices like smartphones, smart home appliances, and industrial sensors remains a key driver for this growth.
Moreover, the semiconductor industry is experiencing heightened demand, bolstered by government policies like the CHIPS and Science Act. This act earmarks roughly $53 billion to enhance semiconductor manufacturing, research, and workforce development within the U.S.
Furthermore, investors' interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF's (SMH) 22% returns over the past six months.
Considering these conducive trends, let's look at the fundamentals of the three Semiconductor & Wireless Chip stocks, starting with number 3.
Stock #3: Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. The company operates in two segments: Semiconductor Solutions and Infrastructure Software.
On October 30, 2023, AVGO and VMware, Inc. (VMW) announced that their acquisition is expected to close soon, with legal clearances in various jurisdictions, including the U.S. AVGO believes this acquisition will enhance competition and innovation in cloud computing.
On October 17, AVGO announced the availability of Qumran3D, the next generation of the StrataDNX family of single-chip routers. Qumran3D raises the bar for carrier and cloud operator solutions by delivering high-performance, low-power, and security-rich networking. Qumran3D, with the power efficiency of the 5nm process, is anticipated to accelerate the transition to merchant silicon routers.
On September 29, 2023, the company paid the shareholders a cash dividend of $4.60 per share. The company has paid dividends for 12 consecutive years, which justifies its shareholder payback abilities.
Its annualized dividend rate of $18.40 per share translates to a dividend yield of 1.88% on the current share price. Its four-year average yield is 3.05%. Its dividend payments grew at CAGRs of 12.3% and 21.3% over the past three and five years, respectively.
AVGO's trailing-12-month net income margin of 39.25% is significantly higher than the 1.77% industry average. Likewise, its trailing-12-month ROCE and ROTA of 64.57% and 19.44% are significantly higher than the industry averages of 0.80% and 0.09%, respectively.
AVGO's revenue and EBITDA grew at 15.2% and 24.7% CAGRs, respectively, over the past three years, while net income grew at 77.6% CAGR.
In the fiscal third quarter that ended July 30, 2023, AVGO's net revenue increased 4.9% year-over-year to $8.88 billion. Its non-GAAP operating income rose 6.5% year-over-year to $5.54 billion. Its non-GAAP net income rose 8.4% over the prior-year quarter to $4.60 billion.
Also, its non-GAAP EPS came in at $10.54, representing an increase of 8.3% year-over-year. In addition, its adjusted EBITDA rose 7.9% year-over-year to $5.80 billion. Moreover, its free cash flow stood at $4.60 billion, up 6.7% from the year-ago quarter.
For the fiscal fourth quarter ending October 2023, AVGO's revenue and EPS are expected to increase 3.9% and 4.8% year-over-year to $9.28 billion and $10.95, respectively. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 89.8% to close the last trading session at $977.73. It has gained 43.3% over the past six months.
AVGO'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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Momentum. It is ranked #19 out of 91 stocks in the Semiconductor & Wireless Chip industry.
To see AVGO's Growth, Value, Stability, and Sentiment ratings, click here.
Stock #2: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that pioneers advanced low-power, high-precision mixed-signal processing solutions. It provides diverse offerings, including audio products, intelligent codecs, DSP-equipped codecs, amplified boosters, standalone DSPs, and the SoundClear technology.
In August, CRUS CRUS revealed plans to provide an innovative audio solution to simplify PC manufacturers' shift towards the MIPI SoundWire® interface (1.2.1 specification). This advanced solution is expected to improve the richness and immersion of audio experiences dramatically.
In a pioneering scheme optimized for the PC platform, CRUS is also joining forces with industry giants Intel and Microsoft. This collaboration promises to help streamline the migration to the SoundWire interface and scalable architecture, resulting in superior audio quality in upcoming laptop models. These developments could bode well for CRUS.
CRUS' trailing-12-month net income margin of 7.99% is significantly higher than the 1.77% industry average. Likewise, its trailing-12-month ROCE and ROTA of 8.37% and 6.69% are significantly higher than the industry averages of 0.80% and 0.09%, respectively.
CRUS' revenue and EBITDA grew at 12.3% and 14.4% CAGRs, respectively, over the past three years, while total assets grew at 7.4% CAGR.
In the fiscal second quarter that ended September 23, 2023, CRUS' revenue stood at $481.06 million, while its gross margin came at 51.3%. Its income from operations came at $105.75 million.
Also, its non-GAAP net income and earnings per share amounted to $101.56 million and $1.80, respectively. In addition, as of September 23, 2023, the company's current assets stood at $1.10 billion, compared to $1.02 billion as of March 25, 2023.
For the fiscal third quarter ending December 2023, analysts expect the company's revenue and EPS to be $540.07 million and $2.01, respectively. Moreover, the company topped the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of CRUS have gained 10.9% over the past month to close the last trading session at $75.62. Over the past five days, it gained 4.8%.
CRUS' positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
CRUS has a B grade for Value, Momentum, and Sentiment. It has ranked #18 within the same industry.
In addition to the POWR Ratings I've just highlighted, you can see CRUS' ratings for Growth, Stability, and Quality here.
Stock #1: Qorvo, Inc. (QRVO)
QRVO develops and commercializes technologies and products for wireless, wired, and power markets. It operates through three segments: High-Performance Analog (HPA); Connectivity and Sensors Group (CSG); and Advanced Cellular Group (ACG).
On October 25, QRVO released QSPICE, a new generation of circuit simulation software that provides power and analog designers with significantly higher levels of design productivity through improved simulation speed, functionality, and reliability, making it easy to solve the complex hardware and software challenges system designers face.
QRVO's trailing-12-month CAPEX/Sales of 4.36% is 85.7% higher than the 2.35% industry average. Its trailing-12-month EBITDA margin of 11.59% is 28.1% higher than the 9.04% industry average.
QRVO's revenue and EBITDA grew at 10.5% and 12.3% CAGRs, respectively, over the past 10 years, while levered free cash flow grew at 31.6% CAGR.
In the fiscal second quarter that ended September 30, 2023, QRVO's revenue stood at $1.10 billion, while non-GAAP gross profit came at $525.25 million. Its non-GAAP operating income was $279.43 million.
Moreover, its non-GAAP net income and net income per share came at $235.51 million and $2.39, respectively. Its total current assets came in at $2.26 billion as of September 30, 2023, compared to $2.03 billion as of April 1, 2023.
The consensus revenue and EPS of $1 billion and $1.66 for the fiscal third quarter ending December 2023 represent 34.9% and 121.1% year-over-year increases, respectively. It surpassed revenue and EPS estimates in each of the trailing four quarters.
QRVO's shares have gained 3.8% year-to-date to close the last trading session at $94.08. Over the past five days, it gained 4.2%
It's no surprise that QRVO has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Growth, Momentum, and Sentiment. It is ranked #15 in the same industry.
Beyond what is stated above, we've also rated QRVO for Value, Stability, and Quality. Get all QRVO ratings here.
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.
AVGO shares were unchanged in premarket trading Monday. Year-to-date, AVGO has gained 78.03%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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