The semiconductor industry is expanding massively as it works tirelessly to accelerate the pace of invention and manufacturing expansion. US semiconductor companies are investing almost a fifth of their annual turnover in research and development to drive the advancement and development of chips. Last year’s investment was a record $50.2 billion.
In addition, domestic semiconductor innovation and production in the United States will be significantly boosted by the CHIPS and Science Act. The law provides $52 billion in research spending, chip manufacturing incentives, and tax credits for investments in semiconductor equipment and manufacturing. Several prominent companies have also announced large investments in US manufacturing.
According to SEMI’s latest World Fab Forecast report, the global semiconductor industry is expected to invest more than $500 billion at 84 major chip manufacturing plants from 2021 to 2023, with segments such as automotive and high performance computing driving spending growth.
New and emerging technological innovations such as artificial intelligence (AI), augmented and virtual reality (AR/VR), autonomous and electric cars, 5G/6G and healthcare technology are driving the growth of the industry. The semiconductor industry is expected to reach $171.69 billion over the next five years. growing at a CAGR of 6.8%.
Given the industry’s long-term growth prospects, it might make sense to keep fundamentally strong chip stocks Taiwan Semiconductor Manufacturing Company Limited (TSM) and MaxLinear, Inc. (MXL) into your portfolio before the year ends. With US-China tensions escalating, rapid inflation and rising interest rates, fundamentally weak NVIDIA Corporation (NVDA) is now best avoided.
Stocks to buy:
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests and sells integrated circuits and other semiconductor devices worldwide. Its products are used in the mobile device, high-performance computing, automotive electronics and Internet of Things markets.
On December 6, TSM announced that in addition to the first factory in Arizona, work has begun on a second factory that will begin production of 3nm process technology in 2026. The total investment for these two factories will be nearly $40 billion, the largest FDI in Arizona history and one of the largest in American history.
TSM Arizona’s two factories are expected to create an additional 10,000 high-paying, high-tech jobs, including 4,500 direct TSM jobs. The company strives to become the greenest semiconductor manufacturing facility in the United States and to develop the most advanced semiconductor process technology in the country.
On October 27th, TSM announced the launch of the 3DFabric Alliance using the Open Innovation Platform® (OIP). This alliance will help TSM’s customers achieve faster silicon and system-level innovation while enabling next-generation HPC and mobile applications leveraging TSMC’s 3DFabric technology.
TSM’s net sales for the third quarter of fiscal 2022 ended September 30, 2022 increased 47.9% year-on-year to $20.23 billion, while gross profit increased 74.2% from the year-ago quarter to 12 $.22 billion rose. It is income from operations grew 81.5% year over year to $10.24 billion.
In addition, the company’s net income was $9.27 billion, up 79.6% from the year-ago quarter, and earnings per share increased 79.8% year-over-year to $0.36.
TSM’s annual dividend of $1.82 per share yields 2.36% on its current price. The four-year average dividend yield is 2.51%, and dividend payments have grown at a CAGR of 9.6% over the past five years.
Analysts expect TSM’s revenue for fiscal 2022 (ending December 2022) to increase 30% year over year to $74.63 billion. The company’s year-to-date EPS is expected to rise 56.8% year over year to $6.46. Additionally, TSM has beaten consensus EPS for all four trailing quarters, which is impressive.
TSM shares are down 2.3% over the past five days to close the last trading session at $75.28.
TSM’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. POWR ratings are calculated considering 118 different factors, each optimally weighted.
The stock has an A rating for quality and sentiment, and a B rating for growth. Within the Semiconductor and wireless chip Industry, it is number 9 of 92 stocks.
Beyond what we’ve provided above, we also have TSM’s ratings for Value, Stability, and Momentum. Get all TSM reviews here.
MaxLinear, Inc. (MXL)
MXL is a global provider of high-frequency, high-performance analog, and mixed-signal communications systems on chips (SoCs) for connected home, industrial, and multi-market applications. Its products are used in electronic devices such as cable data over cable service interface standards (DOCSIS), fiber optic and DSL broadband modems and gateways.
On October 19th, MXL announced its collaboration with SoftAtHome to present prpl Life Cycle Management (LCM), a new option for operators that enables easy development and faster time-to-market of home gateways. The alliance will help MXL accelerate the adoption of the PRPL market by leveraging its open source software concept and sharing common software modules.
On November 15th, MXL and EDIMAX Technology Co., Ltd. announced a partnership to offer homes and small and medium-sized businesses a five-port, 2.5G, high-speed, portable switch solution. MXL hopes to benefit from better Ethernet connectivity as consumers take full advantage of the faster speeds made possible by improved broadband access networks.
For the third quarter of fiscal 2022 ended September 30, 2022, MXL’s net sales increased 24.4% year over year to $285.73 million, while gross profit increased 29% year over year to $167.49 million US dollar rose. The company’s operating income increased 118.4% year over year to $51.95 million.
Additionally, net income rose 206.8% from the year-ago quarter to $24.41 million, while earnings per share came in at $0.35, up 191.7% year over year.
Analysts expect MXL’s revenue for the current fiscal year (ending December 2022) to be $1.12 billion, up 25.5% year over year. Likewise, the company’s earnings per share for the same year are expected to increase 56.7% year over year to $4.22. Additionally, MXL has beaten consensus EPS for all four trailing quarters.
The stock has gained slightly over the past six months, closing the last trading session at $34.06.
MXL’s POWR ratings reflect its strong outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for value, growth, and quality. It ranks 11th out of 92 stocks within the semiconductors and wireless chips industry.
To view additional POWR ratings for Stability, Sentiment and Momentum for MXL, click here.
Stocks to avoid:
NVIDIA Corporation (NVDA)
NVDA is a global provider of graphics, computing and networking technologies. The company operates in two segments, Graphics; and Computers & Network. The company’s products are used in the gaming, professional visualization, data center and automotive industries.
For the third quarter of fiscal 2023 ended October 30, 2022, NVDA’s revenue decreased 16.5% year-on-year to $5.93 billion, while gross profit decreased 31.4% year-on-year to 3, $18 billion declined. Total operating expenses increased 31.4% year over year to $2.58 billion and operating income decreased 77.4% year over year to $601 million.
Additionally, NVDA’s net income and EPS declined 72.4% and 72.2% from the year-ago quarter to $680 million and $0.27, respectively.
Analysts expect NVDA’s EPS to fall 39.3% yoy to $0.80 for the fourth quarter (ending January 2023). Additionally, the company’s earnings per share for the current fiscal year are expected to fall 25.7% year over year to $3.30. The stock is down 49.1% year-to-date to close the last trading session at $153.39.
NVDA’s poor prospects are also reflected in its POWR ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
The stock has a D grade for growth, value and stability. Within the same industry, it ranks 80th out of 92 stocks.
Aside from what we’ve given above, we also have NVDA’s ratings for quality, mood, and dynamics. Get all NVDA ratings here.
TSM shares traded at $74.68 per share on Friday afternoon, down $0.60 (-0.80%). Year-to-date, TSM is down -36.87% versus a -18.36% gain in the benchmark S&P 500 over the same period.
About the Author: Aanchal Sugandh
Aanchal’s passion for the financial markets drives her work as an investment analyst and journalist. She earned her bachelor’s degree in finance and is pursuing the CFA program. With her fundamental analysis skills, she is able to assess the long-term prospects of stocks. Their goal is to support investors in building portfolios with sustainable returns. More…