Despite macroeconomic challenges, the semiconductor industry is expected to expand over time due to increased demand for advanced technologies such as AI and IoT, as well as ongoing innovation and research.

Given the industry’s growth prospects, fundamentally strong Broadcom Inc. (AVGO), NVIDIA Corporation (NVDA) and Taiwan Semiconductor Manufacturing Company Limited (TSM) could be ideal buys for solid returns.

Before delving deeper into their fundamentals, let’s discuss what’s happening in the semiconductor industry.

The semiconductor industry is evolving with emerging technologies such as AI, machine learning, and IoT, driven by worldwide digital and consumer electronics usage. These technologies are driving up the need for more advanced and powerful semiconductors. As a result, the semiconductor industry is expanding rapidly and innovating to keep pace with these changing needs.

The semiconductor robot market in the United States is predicted to develop at an 18.2% CAGR, with a valuation of $817.9 million by 2028. Automation is on the rise in areas such as automotive, electronics, and healthcare, thanks to advances in artificial intelligence and machine learning, which improve manufacturing efficiency.

The global semiconductor chip market is anticipated to reach $1.12 trillion by 2032, growing at a CAGR of 7.1%. Moreover, investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 27.6% returns over the past three 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 with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices and products worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software.

AVGO’s trailing-12-month net income margin of 39.31% is significantly higher than the industry average of 2.20%. Its trailing-12-month ROCE of 60.31% is significantly higher than the industry average of 1.89%.

For the fiscal fourth quarter, which ended October 29, 2023, AVGO’s net revenue increased 4.1% year-over-year to $9.30 billion, while its non-GAAP operating income rose 4.5% from the prior-year quarter to $5.75 billion.

The company’s non-GAAP net income and non-GAAP EPS grew 5.9% and 5.8% from the year-ago value to $4.81 billion and $11.06, respectively. In addition, its adjusted EBITDA amounted to $6.05 billion, up 5.7% year-over-year.

Analysts expect AVGO’s revenue to increase 39.1% year-over-year to $49.83 billion for the year ending October 2024. Its EPS is expected to grow 10.8% year-over-year to $46.83 for the same period. It is expected to surpass EPS in all four trailing quarters. The stock has gained 114.1% over the past year to close the last trading session at $1,283.44.

AVGO’s POWR Ratings reflect this optimistic outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AVGO has an A grade for Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #24 out of 91 stocks. To see additional POWR Ratings for Growth, Sentiment, Value, Stability and Momentum for AVGO, click here.

Stock #2: NVIDIA Corporation (NVDA)

NVDA provides graphics, and compute and networking solutions in the U.S., Taiwan, China, and internationally. The company has two segments: Compute & Networking and Graphics.

On February 6, 2024, NVDA partnered together with Cisco (CSCO) to provide AI infrastructure solutions for the data center that are simple to deploy and operate, providing the tremendous processing capacity that organizations require to succeed in the AI era.

CSCO, with its industry-leading experience in Ethernet networking and broad partner ecosystem, and NVDA, the creator of the GPU that fuelled the AI boom, share a vision and commitment to assisting customers with the transition to AI with highly secure Ethernet-based infrastructure.

NVDA’s trailing-12-month ROTA of 34.88% is significantly higher than the industry average of 0.66%. Its 33.23% trailing-12-month ROTC is significantly higher than the 2.44% industry average.

For the fiscal third quarter that ended October 29, 2023, NVDA’s revenue and non-GAAP gross profit increased 205.5% and 308% year-over-year to $18.12 billion and $13.58 billion, respectively. Moreover, its free cash flow stood at $7.04 billion, up significantly from the prior-year quarter.

For the same quarter, its non-GAAP net income and non-GAAP net income per share stood at $10.02 billion and $4.02, up 588.2% and 593.1% from the year-ago quarter, respectively.

Street expects NVDA’s revenue and EPS for the fiscal first quarter of 2024 (ended April 2024) to increase 197.3% and 340.5% year-over-year to $21.38 billion and $4.80, respectively. It surpassed EPS estimates in all four trailing quarters. NVDA’s shares have gained 222.9% over past year to close the last trading session at $721.33.

NVDA has an A grade for Growth and Sentiment and a B for Quality. It is ranked #21 in the same industry.

Beyond what is stated above, we’ve also rated NVDA for Value, Stability and Momentum. Get all NVDA ratings here.

Stock #1: Taiwan Semiconductor Manufacturing Company Limited (TSM)

Based in Hsinchu City, Taiwan, TSM is a leading global semiconductor manufacturer, specializing in advanced integrated circuits. Its products serve diverse industries, including high-performance computing, smartphones, and automotive applications.

TSM’s trailing-12-month EBIT margin of 42.63% is 811.4% higher than the industry average of 4.68%. Its 67.24% trailing-12-month EBITDA margin is 634.3% higher than the 9.16% industry average.

During the fourth quarter, which ended December 31, 2023, TSM reported net revenue of NT$625.53 billion ($19.62 billion). Its net income and EPS amounted to NT$238.31 billion ($7.48 billion) and NT$9.21, respectively. The company’s total assets amounted to NT$5.53 trillion ($179.93 billion), compared to its previous-year quarter’s total assets of NT$4.96 trillion ($158.21 billion).

The consensus revenue estimate of $84.60 billion for the year ending December 2024 reflects a 23.6% rise year-over-year. Its EPS is expected to grow 21% year-over-year to $6.27 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 45.3% over the past three months to close the last trading session at $133.11.

TSM has an overall B rating, equating to a Buy in our POWR Ratings system.

TSM’s is ranked #15 in the same industry. It has an A grade for Sentiment, Momentum and Quality. To see additional TSM’s ratings for Growth, Value and Stability, click here.

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NVDA shares were trading at $733.98 per share on Monday afternoon, up $12.65 (+1.75%). Year-to-date, NVDA has gained 48.21%, versus a 5.78% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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