AMAT: 3 Semiconductor Stocks in Buy Territory

May 06, 2024

Semiconductors are critical for high-computing applications across multiple industries. The semiconductor industry’s outlook appears promising, with sustained chip demand, lucrative government incentives and investments, and growing adoption of digital technology.

Considering the industry tailwinds, fundamentally strong semiconductor stocks Applied Materials, Inc. (AMAT), NXP Semiconductors N.V. (NXPI), and Nikon Corporation (NINOY) could be ideal buys now.

Despite near-term macroeconomic headwinds, the semiconductor industry is poised for tremendous growth in the foreseeable years, driven by rising chip demand across several end-use industries, including automobile, consumer electronics, telecom, medical devices, and more.

According to a report by Future Markets Insight, the consumer electronics market is projected to grow at a CAGR of 5.8% during the forecast period (2023-2033). The market’s robust outlook reflects sustained demand for chips in PCs and consumer electronics in the future.

Meanwhile, the growing transition toward electric vehicles (EVs) worldwide is expected to benefit the chip industry. As per a McKinsey report, autonomous driving, connectivity, and electrification will drive most of the demand for automotive chips through 2030, accounting for nearly 89% of the total $147 billion automotive semiconductor market in 2030.

Furthermore, favorable government policies and spending should create numerous growth opportunities for the industry. In July 2022, President Biden signed the CHIPS and Science Act into law, directing approximately $53 billion to improve semiconductor manufacturing, research, and the workforce in the US.

This law incorporates a 25% tax incentive for capital investments in semiconductor manufacturing in the US. Since the implementation of the CHIPS law one year ago, businesses have announced investments exceeding $166 billion in semiconductor and electronics manufacturing.

By adopting advanced digital technologies, including the Internet of Things (IoT), data analytics, artificial intelligence (AI), and cloud computing, semiconductor companies can boost their efficiency, lower costs, and gain a competitive advantage in the marketplace.

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Digital transformation also assists companies in innovating and developing new products and services that meet the changing needs of their customers. In addition, with digital integration, chip firms can improve their supply chain management, customer service, and other key business processes.

As per a report by Mordor Intelligence, the semiconductor industry is projected to reach $1.09 trillion by 2028, growing at a CAGR of 10.9%.

In light of these encouraging trends, let’s look at the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with number 3.

Stock #3: NXP Semiconductors N.V. (NXPI)

Headquartered in Eindhoven, the Netherlands, NXPI provides various semiconductor products. The company’s diverse product portfolio includes microcontrollers, application processors, wireless connectivity solutions, analog devices, RF power amplifiers, security controllers, and environmental sensors.

On August 24, NXPI’s board of directors approved an interim dividend of $1.014 per ordinary share for the third quarter of 2023, based on the company’s robust capital structure and its ability to provide stable growth in the long run. The dividend will be paid on October 5, 2023, to shareholders of record as of September 13, 2023, as part of its capital return program.

NXPI pays an annual dividend of $4.06, which translates to a yield of 1.97% at the current share price. Its four-year average dividend yield is 1.34%. Also, the company’s dividend payouts have increased at a CAGR of 35.3% over the past three years. NXPI has raised its dividends for four consecutive years.

On June 6, NXPI introduced a line of top-side cooled RF amplifier modules, leveraging packaging innovation to create thinner, lighter 5G infrastructure radios. The innovative packaging technology reduces base station size and weight by over 20%, aiding easier and more cost-effective installation.

Such technological advancements will increase the demand for its products and might drive future sales.

On May 16, NXPI, with Taiwan Semiconductor Manufacturing Company Limited (TSM), introduced automotive-embedded MRAM in 16 nm FinFET technology. MRAM’s capability to quickly update code and its high endurance make it ideal for automotive applications, reducing downtime and enhancing performance.

This collaboration aims to enhance software-defined vehicles (SDVs) by combining NXP’s high-performance S32 automotive processors with fast, reliable, non-volatile memory in 16 nm FinFET technology.

During the second quarter that ended July 2, 2023, NXPI’s non-GAAP gross profit grew marginally year-over-year to $1.93 billion. The company’s income before income taxes rose 5.6% year-over-year to $863 million, and its net income increased 3% from the year-ago value to $704 million. Also, the company’s earnings per share was $2.67, up 5.5% year-over-year.

Analysts expect NXPI’s revenue for the first quarter (ending March 2024) to increase 7.2% year-over-year to $3.35 billion. The company’s EPS for the same period is expected to grow 8.4% year-over-year to $3.46. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Shares of NXPI have increased 32.8% year-to-date and 24.2% over the past year to close the last trading session at $205.88.

NXPI’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

NXPI has a B grade for Momentum and Quality. It is ranked #14 out of 92 stocks in the Semiconductor & Wireless Chip industry.

In addition to the POWR Ratings we’ve stated above, we also have NXPI ratings for Stability, Sentiment, Value, and Growth. Get all NXPI ratings here.

Stock #2: Applied Materials, Inc (AMAT)

AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related sectors in the United States, China, Korea, Taiwan, Japan, and Europe. The company operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.

On July 11, AMAT introduced the Vistara™ wafer manufacturing platform. The platform is a significant advancement in chipmaking, designed to tackle the changing obstacles in the industry. It provides chipmakers with improved flexibility, intelligence, and sustainability.

Vistara is notable for its various chamber types and sizes, which utilize AMAT’s proprietary technology and contributions from partners.

Dr. Prabu Raja, President of the Semiconductor Products Group at AMAT, said, “Vistara is being launched at an opportune time when the semiconductor industry needs unique solutions to address growing chipmaking challenges related to complexity, cost, cadence and carbon emissions.”

On July 10, AMAT unveiled fresh materials, technologies, and systems aimed at helping semiconductor manufacturers incorporate chipsets into advanced 2.5D and 3D packages through hybrid bonding and through-silicon vias.

These additions expand AMAT’s wide range of technologies for heterogeneous integration (HI), which can enhance system performance, reduce power usage, decrease size, and accelerate time-to-market. These advancements are anticipated to have a substantial positive impact on the company.

During the third quarter that ended July 30, 2023, AMAT’s net sales from the Applied Global Services segment were $1.46 billion, up 3.1% year-over-year. As of July 30, 2023, the company’s cash and cash equivalents were $6.03 billion, compared to $2 billion as of October 30, 2022. Its current assets amounted to $18.88 billion versus $15.93 billion as of October 30, 2022.

Analysts expect AMAT’s EPS for the fiscal year (ending October 2023) to increase 2.5% year-over-year to $7.89. Likewise, the consensus revenue estimate of $26.32 billion for the current year indicates a 2.1% rise year-over-year. In addition, the company exceeded the consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.

AMAT’s stock gained 30% over the past six months and 56.1% year-to-date to close the last trading session at $150.95.

AMAT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

AMAT has an A grade for Momentum and a B for Quality. Of the 92 stocks in the Semiconductor & Wireless Chip industry, it is ranked #13.

To see the other ratings of AMAT for Sentiment, Growth, Value, and Stability, click here.

Stock #1: Nikon Corporation (NINOY)

NINOY, headquartered in Minato, Japan, is a global manufacturer and distributor of optical instruments. It operates through Imaging Products; Precision Equipment; Healthcare Business; Components Business; and Others segments. The company’s offerings include a range of products such as cameras, microscopes, lithography systems, optical components, and many more.

On August 31, NINOY introduced the NSR-2205iL1 5x reduction i-line stepper for manufacturing semiconductors and MEMS devices. It offers high productivity, optimized yield, and accurate wafer measurement through features like multipoint autofocus, advanced wafer stage leveling, and expanded depth of focus range.

The new launch is also compatible with various wafer thicknesses and sizes, possesses high wafer warpage tolerance, and supports the processing of materials like SiC and GaN. Such features enable it to cater to the various needs of chip manufacturers, which will increase its demand among customers in the future.

On July 27, NINOY introduced the AX R MP with an NSPARC super-resolution multiphoton confocal microscope. This technology aids in super-resolution imaging in deep areas of large living organisms and drug discovery research. Such technological advancements will give NINOY a competitive advantage over its peers.

For the first quarter that ended June 30, 2023, NINOY’s revenue and total comprehensive income for the period came in at ¥158.15 billion ($1.08 billion) and ¥33.89 billion ($231.86 million), up 8.6% and 7.6% year-over-year, respectively. The company’s total assets stood at ¥1.10 trillion ($7.53 billion) as of June 30, 2023, compared to ¥1.05 trillion ($7.18 billion) as of March 31, 2023

Street expects NINOY’s revenue for the second quarter (ending September 2023) to grow 15.9% year-over-year to $1.17 billion. Similarly, the consensus revenue estimate of $4.46 billion for the fiscal year (ending March 2024) represents a 45.9% increase year-over-year.

Over the past six months, the stock has gained 7.7% and 20% year-to-date to close the last trading session at $10.56.

NINOY’s POWR Ratings reflect this promising outlook. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.

NINOY has a B grade for Value, Stability, and Quality. It is ranked #12 within the same industry.

To see the other ratings of NINOY for Value, Growth, and Stability, click here.

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AMAT shares were trading at $150.86 per share on Thursday morning, down $0.09 (-0.06%). Year-to-date, AMAT has gained 56.02%, versus a 19.04% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...