Semiconductor companies have gained significant traction since the onset of the COVID-19 pandemic as rising demand for tech devices has fueled the demand for the advanced microchips produced by these companies. However, not all semiconductor stocks are equal, or well positioned to ride the wave. So, investors need to be careful in picking stocks from this industry.
Intel Corporation (INTC), one of the top global chipmakers, enjoys strong cash flow growth and has always rewarded shareholders. However, the stock lost some of its appeal in 2020 as other chipmakers thrived on pandemic-led market changes. The stock has lost 14.7% over the past year; the VanEck Vectors Semiconductor ETF (SMH) gained 57.7%.
Since 2018, INTC has been grappling with boosting the production of its 10 and 14 nanometer (nm) chips. This has caused a huge supply gap in the CPU market and impacted PC makers adversely. Adding to INTC’s woes, the production of its 7nm process was delayed by almost a year beyond the company’s target date. In addition to poor management decisions and inefficient execution, INTC has been plagued by some structural issues for some time.
As INTC battles production bottlenecks, its peers Qualcomm Incorporated (QCOM), Micron Technology, Inc. (MU), and Applied Materials, Inc. (AMAT) are better placed. Rising demand for 5G smartphones, logic segment, and high-end computing are likely to boost their businesses immensely. Hence, we think it is wise to look beyond INTC and bet on these high-growth chipmakers.
Qualcomm Incorporated (QCOM)
QCOM is a global leader in design, manufacturer, and chipset sales with operations across the U.S. , China, South Korea, and Taiwan. In addition to semiconductors, QCOM manufactures software & services and intellectual property mainly for wireless technology.
QCOM’s has announced that its CEO, Steve Mollenkopf, will step down in June 2021. The company has named Cristiano Amon as Mollenkopf’s successor. Amon has been instrumental in leading QCOM’s 5G business, dealing with Apple, as well as its foray into developing chips for autonomous cars.
During the fourth quarter ended September 30, 2020, QCOM’s revenue climbed 73% year-over-year to $8.3 billion. The increase was increase is driven by strength in 5G demand in the company’s licensing and product businesses.
Meanwhile, QCOM’s EPS was $2.58 compared to $0.42 posted in the same period last year. QCOM’s. Mollenkopf stated that the company is well positioned for growth in 2021 and beyond. QCOM will continue to drive growth and scale across its RF front-end, Automotive and IoT adjacencies.
Analysts expect QCOM’s revenue for the quarter ended December 30, 2020 to be $8.2 billion, representing 62.8% growth year-over-year. Its EPS is likely to rise 24.2% to $2.08.
QCOM surged 70.7% over the past year to end yesterday’s trading session at $151.19. During the past six months, TSM has rallied 61.6%.
How does QCOM stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Industry Rank
A for Overall POWR Rating.
The stock is currently ranked #4 of 96 stocks in the Semiconductor & Wireless Chip Industry.
Micron Technology, Inc. (MU)
MU is involved in the designing, manufacturing, and selling memory and storage products globally. Compute and Networking Business, Mobile Business, Storage Business, and Embedded Business are the four segments through which the company operates. Memory products for the cloud server, client, graphics, enterprise, and networking markets, are among the products that MU produces.
MU has stated that it is planning to establish a Center of Excellence and expand industry-academia collaboration in India. The company also stated that it plans to hire 3,600 additional employees over the next three years in the country.
During the fourth quarter ended September 30, 2020, MU’s revenue climbed 24.4% year-over-year to $6.06 billion. EPS for the quarter rose to $0.87 from $0.49 in the prior year period. The company’s President and CEO Sanjay Mehrotra said, “Micron delivered solid fiscal fourth quarter revenue and EPS resulting from strong DRAM sales in cloud, PC and gaming consoles and an extraordinary increase in QLC NAND shipments.”
The Street estimates revenue for the quarter ending February 2021 to be $5.5 billion, representing 14.7% year-over-year growth. MU’s EPS is expected to increase at the rate of 15.2% per annum over the next five years.
MU ended yesterday’s trading session at $77.11, gaining 41.7% over the year. During the past six months, it has surged 55.1%.
It is no surprise that MU is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and a “B” for Peer Grade, and Industry Rank. It is currently ranked #6 of 96 stocks in the Semiconductor & Wireless Chip Industry.
Applied Materials, Inc. (AMAT)
AMAT manufactures software, equipment, and services for the semiconductor, display, and allied industries. Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets are the three segments through which the company operates. AMAT operates in the United States, Taiwan, Japan, Southeast Asia, China, Korea, and Europe.
AMAT has announced that it is raising its offer to buy Kokusai Electric from KKR & Co. to $3.5 billion from $2.2 billion due to increased valuations and prospects in a growing industry. AMAT’s revenue for the fourth quarter ended October 31, 2020, climbed 24.8% to $4.7 billion, driven by a 58% rise in Foundry, logic, and other segments. Meanwhile, its EPS rose 64% year-over-year to $1.23 for the quarter.
The consensus revenue estimate for AMAT or the quarter ending January 2021 is $5 billion, indicating a 19.3% year-over-year growth. EPS for the quarter is expected to surge 28.6% to $1.26.
Over the past year, AMAT has climbed 46.4% to end yesterday’s trading session at $90.83. During the past six months, the stock has rallied 46.9%.
AMAT’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and a “B” for Industry Rank. It is currently ranked #7 of 96 stocks in the Same Industry.
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QCOM shares were trading at $154.73 per share on Thursday afternoon, up $3.54 (+2.34%). Year-to-date, QCOM has gained 1.57%, versus a 1.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…
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