The growing penetration of advanced digital technologies and extensive usage of chips in a wide range of end-use applications such as consumer electronics, industrial equipment, automotive, networking and communications, and data processing is the primary factor that boosts the semiconductor industry's growth.
Amid this backdrop, investors could consider buying fundamentally sound chip stocks KLA Corporation (KLAC), Taiwan Semiconductor Manufacturing Company Limited (TSM), and Everspin Technologies, Inc. (MRAM) to spark their portfolios.
According to the Semiconductor Industry Association (SIA), global semiconductor sales totaled $137.70 billion in the first quarter of 2024, up 15.2% year-over-year. John Neuffer, SIA president and CEO, said, “The market is expected to continue to grow during the remainder of the year, with double-digit annual growth projected for 2024.”
For 2024, SIA projects worldwide semiconductor sales to grow 13.1% year-over-year to $588.40 billion.
According to a Precedence Research report, the global semiconductor market is expected to reach $1.14 trillion by 2033, growing at a CAGR of 7.7% during the forecast period (2024-2033). The adoption of cloud computing, data analytics, AI, machine learning, and IoT require specialized, high-performance chips.
Moreover, investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 24% returns over the past six months.
Considering these encouraging factors, let’s analyze the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with the third choice.
Stock #3: KLA Corporation (KLAC)
KLAC designs, manufactures, and markets process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. It operates through three segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB, Display and Component Inspection.
On May 2, 2024, KLAC declared a quarterly cash dividend of $1.45 per share on its common stock, payable on May 31, 2024. KLAC pays an annual dividend of $5.80, which translates to a yield of 0.81% on the current market price. Also, its four-year average dividend yield is 1.21%.
In addition, the company’s dividend payouts have grown at a CAGR of 15.7% over the past three years. KLAC has raised its dividend for 14 consecutive years.
KLAC’s trailing-12-month gross profit margin of 59.57% is 21.3% higher than the 49.12% industry average. Its trailing-12-month EBIT margin of 36.25% is 703.1% higher than the industry average of 4.51%. Likewise, the stock’s 0.67x trailing-12-month asset turnover ratio is 10.2% higher than the 0.61x industry average.
For the third quarter that ended March 31, 2024, KLAC reported total revenues of $2.36 billion. Its net income and net income per share came in at $601.54 million and $4.43, up 3.3% and 3.5% from the previous quarter, respectively. In addition, as of March 31, 2024, the company’s total assets stood at $14.96 billion, compared to $14.07 billion as of June 30, 2023.
Analysts expect KLAC’s revenue for the fourth quarter (ending June 2024) to increase 7.1% year-over-year to $2.52 billion. Its EPS is expected to grow 13.1% year-over-year to $6.11 for the same period. Also, the company topped the consensus EPS and revenue estimates in each of the four trailing quarters, which is remarkable.
KLAC’s shares have gained 44.7% over the past nine months to close the last trading session at $718.27.
KLAC’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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KLAC has an A grade for Momentum and Quality and a B for Sentiment. It is ranked #14 out of 91 stocks in the Semiconductor & Wireless Chip industry.
Click here to see the additional POWR Ratings for KLAC (Stability, Growth, and Value).
Stock #2: Taiwan Semiconductor Manufacturing Company Limited (TSM)
Based in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. The company’s products are applied in high-performance computing, smartphones, automotive, and digital consumer electronics.
On April 24, TSMC introduced its newest semiconductor process, advanced packaging, and 3D IC technologies for powering the next generation of AI innovations with silicon leadership at its 2024 North America Technology Symposium.
The company unveiled the TSMC A16™ technology, featuring nanosheet transistors with innovative backside power rail solution for production in 2026, bringing improved logic density and performance. Also, it introduced its System-on-Wafer (TSMC-SoW™) technology, a solution to bring revolutionary performance to the wafer level in addressing the AI requirements for hyperscaler datacenters.
TSM’s trailing-12-month net income margin of 53.57% is 9.8% higher than the industry average of 48.79%. Its trailing-12-month EBIT margin of 41.82% is 844.6% higher than the industry average of 4.43%. Likewise, its trailing-12-month net income margin of 38.16% is significantly higher than the industry average of 2.40%.
For the first quarter that ended March 31, 2024, TSM’s net revenue increased 16.5% year-over-year to $18.87 billion. Its gross profit grew 9.8% from the prior year’s quarter to $10.02 billion. The company’s income from operations was $7.93 billion, up 7.7% from the previous year’s quarter.
Furthermore, the company’s net income and EPS came in at $7.17 billion and $0.28, up 8.8% and 9% year-over-year, respectively.
Analysts expect TSM’s revenue for the second quarter (ending June 2024) to increase 29.1% year-over-year to $19.94 billion. Its EPS is expected to grow 19.8% year-over-year to $1.37 for the ongoing quarter. Moreover, the company topped the consensus EPS and revenue estimates in each of the four trailing quarters.
Shares of TSM have gained 75.8% over the past year to close the last trading session at $149.26.
TSM’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TSM has an A grade for Momentum and Quality. The stock is ranked #13 in the same industry.
Beyond what is stated above, we’ve also rated for Growth, Value, and Stability. Get all TSM ratings here.
Stock #1: Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells magnetoresistive random access memory (MRAM) products, including Toggle MRAM, spin-transfer torque MRAM, and tunnel magnetoresistance sensor products. The company serves original equipment, contract, and design manufacturers.
On April 9, 2024, MRAM announced the new brand name PERSYST for its persistent memory product family. The company’s initiative to simplify product identification beyond conventional alphanumeric identifiers promises to make selecting the right solutions easier for clients.
In terms of the trailing-12-month net income margin, MRAM’s 58.37% is 19.6% higher than the 48.79% industry average. Likewise, its 7.24% trailing-12-month EBIT is 63.6% higher than the 4.43% industry average.
In the first quarter that ended March 31, 2024, MRAM reported a total revenue of $14.43 million, of which product sales were $10.86 million. Its adjusted EBITDA was $1.91 million for the quarter. The company’s cash inflows from financing activities came in at $353 thousand, compared to cash outflows of $2.78 million in the prior year’s quarter.
As of March 31, 2024, the company’s total current liabilities reduced to $5.90 million, compared to $8.78 million as of December 31, 2023.
Street expects MRAM’s revenue for the fiscal year (ending December 31, 2025) to increase 10.3% year-over-year to $56.95 million. The consensus EPS estimate of $0.37 for the same period indicates an improvement of 184.6% year-over-year. Additionally, the company surpassed consensus revenue estimates in each of the trailing four quarters.
MRAM’s shares have plunged 22.6% over the past month to close the last trading session at $6.03.
MRAM’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
The stock has a B grade for Momentum and Value. MRAM is ranked #12 in the same industry.
To access MRAM’s additional ratings for Stability, Quality, Sentiment, and Growth, Click 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.
TSM shares were trading at $146.66 per share on Monday morning, down $2.60 (-1.74%). Year-to-date, TSM has gained 41.47%, versus a 10.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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