With semiconductor sales soaring globally and significant investments pouring into the sector, investors could invest in promising chip stocks STMicroelectronics N.V. (STM), Photronics, Inc. (PLAB), and Cirrus Logic, Inc. (CRUS) for better-than-market returns.
In January 2024, semiconductor sales in the Americas reached $12.64 billion, marking an increase from the $10.51 billion recorded in the same month the previous year. Besides, according to the Semiconductor Industry Association’s (SIA) recent report, global semiconductor industry sales reached $47.60 billion in January 2024, representing a 15.2% increase from January 2023.
Swift technological advancements are chiefly fueling the global semiconductor industry. The widespread adoption of IoT devices and the incorporation of artificial intelligence (AI) and machine learning (ML) contribute to the industry’s growth. The global semiconductor market is expected to expand at a CAGR of 7.7% to reach $1.22 trillion by 2032.
Further, the CHIPS Act's incentives have already catalyzed substantial investments in the U.S., with semiconductor ecosystem companies announcing over $200 billion in new projects, expected to generate 40,000 jobs within the semiconductor sector and support numerous others across the economy.
Taking into account these promising trends, let's begin assessing the fundamentals of the three Semiconductor & Wireless Chip stock picks, starting with the third choice:
Stock #3: STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM and its subsidiaries design, develop, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, Sensors Group, Microcontrollers, and Digital ICs Group segments.
STM’S 24.36% trailing-12-month net income margin is 788.9% higher than the 2.74% industry average. The stock’s trailing-12-month EBIT margin of 26.74% is 452.6% higher than the 4.84% industry average.
On March 25, 2024, STM disclosed details of its common share repurchase program, where it bought back 165,237 ordinary shares, equal to 0.02% of its issued share capital, on the Euronext Paris market between March 18 to March 20, 2024. The total purchase price amounted to EUR 6.70 million ($7.27 million), with shares held to meet obligations from debt financial instruments. The company now has 10,436,737 treasury shares, representing approximately 1.1% of its issued share capital.
On March 19, STM unveiled an advanced process utilizing 18nm Fully Depleted Silicon On Insulator (FD-SOI) technology with embedded phase change memory (ePCM) to support next-gen embedded processing devices. Developed in collaboration with Samsung Foundry, this new technology promises enhanced performance and reduced power consumption, enabling larger memory sizes and increased integration of analog and digital peripherals.
STM’s net revenue for the fiscal year ended December 31, 2023, increased 7.2% year-over-year to $17.29 billion. Its gross profit rose 8.5% from the year-ago value to $8.29 billion. Its operating income stood at $4.61 billion, up 3.9% year-over-year. In addition, the company’s net income and EPS came in at $4.21 billion and $4.46, up 6.3% and 6.4% over the previous year’s quarter, respectively.
For the fiscal year 2025, STM’s EPS and revenue are expected to increase 23.2% and 8.7% year-over-year to $3.74 and $17.58 billion, respectively. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 3% to close the last trading session at $43.02.
STM’s POWR Ratings reflect its promising outlook. 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 optimally.
It has an A grade for Value and a B for Quality. It is ranked #7 in the 89-stock Semiconductor & Wireless Chip industry.
To see STM’s additional Growth, Momentum, Sentiment, and Stability grades, click here.
Stock #2: Photronics, Inc. (PLAB)
PLAB and its subsidiaries craft and distribute photomask products worldwide. The company specializes in photomasks for integrated circuits and flat panel displays, facilitating precise circuit pattern transfer onto semiconductor wafers and FPD substrates.
PLAB’s trailing-12-month EBIT margin of 28.37% is 486.2% higher than the industry average of 4.84%. Its trailing-12-month net income margin of 15.34% is 459.9% higher than the industry average of 2.74%.
During the fiscal first quarter that ended January 28, 2024, PLAB’s revenue increased 2.5% year-over-year to $216.33 million. Its operating income rose 2.7% from the year-ago quarter to $57.49 million. Also, the company’s non-GAAP net income and non-GAAP EPS rose 22.7% and 20% over the prior-year quarter to $29.91 million and $0.48, respectively.
PLAB anticipates revenue between $226 million and $236 million for the fiscal second quarter, with non-GAAP net income between $0.50 and $0.58 per share.
Street expects PLAB’s EPS for the second quarter ending April 2024 to increase 1.9% year-over-year to $0.55. Its revenue for the same quarter is expected to increase marginally year-over-year to $231 million.
Over the past year, the stock has gained 71.9% to close the last trading session at $28.13. It has soared 47.1% over the past six months.
PLAB’s POWR Ratings reflect its rosy prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value and Quality. It is ranked #6 in the same industry.
Beyond what we stated above, we have also given PLAB grades for Growth, Stability, and Sentiment. You can get all the PLAB ratings here.
Stock #1: Cirrus Logic, Inc. (CRUS)
CRUS is a fabless semiconductor company that develops low-power, high-precision mixed-signal processing solutions both domestically and internationally. The company provides audio solutions, including integrated audio components, smart codecs, amplifiers, DSPs, and SoundClear technology for enhanced user experiences.
CRUS’ trailing-12-month EBIT and EBITDA margins of 18.25% and 21.33% are 277% and 130.2% higher than the industry averages of 4.84% and 9.26%, respectively.
On February 5, 2024, CRUS, along with Intel Corporation (INTC) and Microsoft Corporation (MSFT), introduced a groundbreaking PC reference design. This design seamlessly integrates CRUS’ audio and power technologies with Intel’s Lunar Lake processor. The result is a remarkable reduction in heat output, delivering immersive audio experiences and significantly enhancing battery life.
For the fiscal third quarter that ended December 30, 2023, CRUS’ net sales rose 4.8% year-over-year to $618.98 million. The company’s non-GAAP operating profit increased 10.6% over the prior-year quarter to $192.23 million. Its non-GAAP net income and non-GAAP EPS amounted to $160.63 million and $2.89 per share, up 18.3% and 20.4% year-over-year, respectively.
Analysts expect CRUS’ EPS and revenue for fiscal year 2025 to increase 3.6% year-over-year to $6.22 and $1.80 billion, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 24.4% to close the last trading session at $89.35.
It’s no surprise that CRUS has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Growth, Value, Sentiment, and Quality and is ranked #3 in the Semiconductor & Wireless Chip industry.
Click here to see CRUS’ additional Momentum and Stability grades.
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STM shares were trading at $43.99 per share on Wednesday afternoon, up $0.97 (+2.25%). Year-to-date, STM has declined -12.15%, versus a 9.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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