The commercial deployment of 5G has begun. Leading telecom giants are expanding their network infrastructure to deliver next-generation connectivity to remote parts of the country. Furthermore, substantial government funding is expected to be provided to ensure 5G availability across the United States. For example, the Senate-approved Infrastructure Investment and Jobs Act is expected to provide $65 billion to fund universal broadband accessibility goals.
However, the global semiconductor shortage is a major headwind that is currently hamstringing the 5G rollout. Regarding this, Evercore analyst James Ratcliffe said, “Overall, you’re looking at some time in the end of ‘21 to end of ‘23 to get two-thirds of the country’s population covered with a 5G service.”
The federal government has already provided $52 billion in funding to the domestic semiconductor industry through the CHIPS for America Act. Given this backdrop, we believe semiconductor companies Broadcom Inc. (AVGO), QUALCOMM Incorporated (QCOM), NXP Semiconductors N.V. (NXPI), and Qorvo, Inc. (QRVO), which facilitate 5G network infrastructure, should grow substantially in the coming months.
Click here to checkout our 5G Industry Report for 2021
Broadcom Inc. (AVGO)
AVGO manufactures semiconductor and infrastructure software solutions through two segments—Semiconductor Solutions, and Infrastructure Software. The San Jose, Calif., companies’ products are used in networking, software, broadband, wireless, storage, and industrial markets.
In its second fiscal quarter, ended May 2, 2021, AVGO’s sales rose 15% year-over-year to $6.61 billion. This can be attributed to a 20% rise in semiconductor sales. Its non-GAAP net income came in at $2.98 billion, up 28.3% from the same period last year. And its non-GAAP EPS increased 28.8% from the prior-year quarter to $6.62.
On June 15, AVGO added Value Stream Management (VSM) to its ValueOps software portfolio. VSM’s industry-first software capabilities should enable businesses and I.T. leaders to track values through a continuous product lifecycle, thereby generating substantial ROI.
In the same month, AVGO expanded its electro-optics platform solutions portfolio for data center and cloud networks to meet higher network bandwidth requirements. As companies expand their network capacity amid rapid digital transformation, this expansion should drive AVGO’s revenues significantly over the long term.
Analysts expect AVGO’s revenues to rise 11.9% year-over-year to $7.23 billion in the current quarter, ending October 2021. A $7.49 consensus EPS estimate for the fiscal fourth quarter represents an 18% rise year-over-year. In addition, the company has an impressive earnings surprise history; it surpassed the Street’s estimates in each of the trailing four quarters. Shares of AVGO have gained 48.3% over the past year and 11% year-to-date.
AVGO’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Stability, Sentiment, and Quality. Of the 99 stocks in the B-rated Semiconductor & Wireless Chip industry, AVGO is ranked #5.
In addition to the grades I’ve highlighted, you can view AVGO ratings for Value and Momentum here.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in AVGO for a 25% gain. Learn more about the RTR service here.
Click here to checkout our Semiconductor Industry Report for 2021
QUALCOMM Incorporated (QCOM)
San Diego, Calif.-based QCOM is a wireless technology company that develops foundational technologies and products. It operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.
QCOM’s Non-GAAP net revenues for its fiscal third quarter (ended June 27, 2021) grew 63% year-over-year to $8 billion. Its Non-GAAP net income stood at $2.20 billion, up 124% from the prior-year quarter, and its Non-GAAP EPS increased 123% from its year-ago value to $1.92.
On August 5, QCOM submitted an offer to acquire Veoneer, Inc. (VNE) for $37 per share in an all-cash transaction. QCOM outbid rival Magna International, Inc.’s (MGA) offer by 18.4%. Regarding this, QCOM CEO Cristiano Amon said, “The proposed acquisition will bring together our industry-leading automotive solutions with Veoneer’s assisted driving assets to deliver a competitive and open ADAS platform to automakers and Tier 1 suppliers at scale.”
In July, QCOM partnered with Georgia Smart City in a new deal with the government of Peachtree Corners, Georgia, and Jacobs. Under the partnership, the three organizations plan to roll out various offerings related to Cellular Vehicle-to-Everything technology. This highlights QCOM’s highly efficient products and software designed to support smart cities.
A $8.86 billion consensus revenue estimate for the fiscal fourth quarter (ending September 2021) indicates a 36.2% improvement year-over-year. Analysts expect QCOM’s EPS to come in at $2.26, indicating a 55.9% rise year-over-year. Also, QCOM beat the consensus EPS estimates in each of the trailing four quarters. QCOM has gained 30.7% over the past year to close Friday’s trading session at $148.64.
QCOM’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which equates to Buy in our proprietary rating system. In addition, it has a B grade for Value, Quality, and Sentiment. The stock is ranked #14 in the Semiconductor & Wireless Chip industry.
View additional QCOM ratings for Growth, Momentum, and Stability here.
Click here to checkout our Semiconductor Industry Report for 2021
NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, Netherlands, NXPI sells a variety of semiconductor products like i.MX application processors and i.MX 8 family of applications. These are commonly used in automotive, industrial, Internet of Things, and communication infrastructure industries.
NXPI’s sales increased 42.9% year-over-year to $2.60 billion in its fiscal second quarter, ended July 4. Its Non-GAAP operating income increased 121% from the same period last year to $830 million. Its Net income was $406 million, representing a 294.3% improvement from the same period last year. And its EPS grew 284.4% year-over-year to $1.42, versus a $0.77 loss per share in the prior-year quarter.
On July 20, NXPI entered a secure data exchange agreement with insurtech company MOTER Technologies. The collaboration should allow NXPI to develop new automotive industry innovations and valued services.
NXPI partnered with Indian company Jio Platforms Ltd in June to implement a 5G NR O-RAN small cell solution that incorporates NXPI’s Laverscape family of multicore processors. This partnership is expected to shape Jio’s 5G network deployment in India. As 5G slowly penetrates the world’s second-largest internet market, NXPI’s partnership with Jio platforms should significantly expand its market reach and its revenues.
The Street expects NXPI’s revenues to increase 27.1% year-over-year to $2.85 billion in the current quarter, ending September 2021. The company’s EPS is expected to rise 68.5% from the same period last year to $2.73 in the current quarter. Furthermore, NXPI has an impressive earnings surprise history;it beat the consensus EPS estimates in each of the trailing four quarters. Shares of NXPI have gained 74.9% over the past year and 35.4% year-to-date.
It’s no surprise that NXPI has an overall B rating, which translates to Buy in our proprietary rating system. In addition, the stock has a grade of A for Growth, and a B for Quality. It is ranked #24 in the Semiconductor & Wireless Chip industry.
In addition to the grades mentioned above, one can view the NXPI rating for Value, Momentum, Stability, and Sentiment here.
Qorvo, Inc. (QRVO)
QRVO is a semiconductor company that designs, manufactures, and supplies radio-frequency systems with applications in wireless and broadband communications and foundry services. It operates through two segments—Mobile Products; and Infrastructure and Defense Products. QRVO is based in Greensboro, N.C.
In the fiscal first quarter, ended July 3, QRVO’s revenues grew 41% year-over-year to $1.11 billion. Its Non-GAAP operating income came in at $367 million, up 80.2% from the prior-year quarter, and its non-GAAP net income and EPS reported an 84.2% and 88.7% rise, respectively, over the same quarter last year to $322.60 million and $2.83.
On July 28, QRVO’s Qorvo Omnia™ SARS-CoV-2 Antigen Test platform was validated in two NIH-funded studies. This marks an important milestone in the development of the Qorvo Omnia diagnostic platform.
In another development on June 21, QRVO began marketing a family of electronically reconfigurable dual-band GaN power amplifiers. With applications in radar architecture for defense, weather, and commercial avionics, these products' commercial sale and distribution should facilitate QRVO’s growth substantially over the long run.
QRVO announced that its DW3000 family of products are interoperable with the Apple U1 chip in the same month. This should lead to the rapid adoption of QRVO software in mobile, automotive, and IoT, facilitating new user experiences.
Analysts expected QRVO’s revenues and EPS to rise 18.3% and 24.3%, respectively, year-over-year to $4.75 billion and $12.11 in the current year. In addition, the company surpassed consensus EPS estimates in each of the trailing four quarters. QRVO has gained 43% over the past year and 13.3% year-to-date.
QRVO has an overall rating of B, which equates to Buy in our POWR Ratings system. In addition, the stock has a grade of A for Quality, and a B for Growth and Sentiment. It is ranked #17 in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we have rated QRVO for Value, Momentum, and Stability. Get all QRVO ratings here.
Click here to checkout our 5G Industry Report for 2021
AVGO shares were trading at $485.72 per share on Monday afternoon, down $0.44 (-0.09%). Year-to-date, AVGO has gained 12.68%, versus a 19.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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