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Finance

These 3 Chip Stocks Are Cheap and Screaming Buys

Increasing reliance on tech products and solutions and rapid digitization have fueled the demand for semiconductors over the past year. According to The Semiconductor Industry Association (SIA), global semiconductor industry sales rose 6.5% year-over-year to $439 billion in 2020. However, a current global chip shortage caused by  exponential growth in demand has negatively impacted the production and sales of many industries, especially electronics and automotive.

Governments and corporations from the world over have been investing heavily to revive the industry. President Biden has proposed to invest $50 billion in leading-edge semiconductor manufacturing and research and development under the CHIPS for America Act to meet the needs of domestic companies and help the U.S. become a world leader in chip technology. The global semiconductor market is expected to grow at an 8.6% CAGR  over the next seven years to hit  $803.15 billion by 2028. Thus, most semiconductor stocks have the potential to  thrive.

This favorable backdrop should help leading chip manufacturers Intel Corporation (INTC), Qualcomm Incorporated (QCOM), and Micron Technology Inc. (MU) to grow significantly in the coming months. Because current market volatility has made them trade at discounts to their peers, we think these stocks are screaming buys now.

Click here to checkout our Semiconductor Industry Report for 2021

Intel Corporation (INTC)

INTC designs, manufactures, and sells computer products and technologies that deliver networking, data storage and communication platforms. The company’s products include microprocessors, chipsets, embedded processors and microcontrollers, flash memory, graphic, network and communication, systems management software, conferencing, and digital imaging products.

On June 21, INTC collaborated with Cellwize Wireless Technologies, an automation and orchestration company, to boost 5G virtual radio access network (vRAN) deployments by adding Cellwise’s CHIME network optimization platform to INTC’s Xeon Scalable processors and FlexRAN reference software. As cellular networks progress from RAN to vRAN, this collaboration should allow operators to deploy vRAN more quickly, with a fully automated process, thus providing 90% reduction in associated costs, improved quality of services through automation, and overall enhanced customer satisfaction through AI-driven and predictive decision making.

In May , Toyota Motor Corporation (TM) chose Mobileye, an INTC subsidiary in Israel, and ZF Group, a German car parts maker, to develop advanced driver-assistance systems (ADAS) for use in multiple vehicle platforms, beginning in the next few years. Combining Mobileye EyeQ4 vision-computing system-on-chips (SoCs) with ZF’s Gen 21 mid-range radar technology in ZF’s automotive cameras, should help prevent and mitigate collisions, while yielding best-in-class lateral and longitudinal vehicle control in TM vehicles. Both companies hope to create a long-standing partnership with TM.

For its fiscal first quarter, ended March 27, 2021, INTC’s non-GAAP operating margin was 32.8%, which represented a 130-basis-point rise sequentially. While the company’s revenue from its IoT segment increased13.5% year-over-year to $1.29 billion, the revenue from its Client Computing Group increased 8.5% year-over-year to $10.61 billion. As of March 27, 2021, TM  had $5.19 billion in cash and cash equivalents. The stock’s EPS is expected to grow at a 5.4% rate per annum over the next five years. In terms of its non-GAAP forward P/E, INTC’s 12.07x is 53.7% lower than the 26.09x industry average. In terms of forward EV/EBITDA, the stock is currently trading lower than the industry average (7.33x versus 16.45x). INTC has climbed 21% over the past six months and closed yesterday’s trading session at $55.26.

INTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an A grade for Value, and a B for Quality. To see additional POWR Ratings for INTC’s Growth, Stability, Sentiment, and Momentum, click here. INTC is ranked #23 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

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Qualcomm Incorporated (QCOM)

QCOM is a multinational semiconductor and telecommunications equipment company that develops, launches, and expands products and services related to wireless technology. The company pioneered the commercialization of the code-division multiple access (CDMA) technology used in digital wireless communications equipment and satellite ground stations. It is also the world’s largest wireless chip vendor, supplying many premier handset makers with leading-edge processors.

This month, QCOM introduced seven new solutions to help enable the proliferation of next-generation IoT devices. QCOM’s latest IoT solutions are purpose-built to help meet the needs of the expanding IoT ecosystem among industrial and commercial applications. By providing cutting edge performance and seamless connectivity, QCOM expects to generate good sales from the accelerating digital transformation of various key segments in the economy.

Also this month, QCOM, Nokia Corporation (NOK), and UScellular achieved a world record extended range over mmWave of more than 10 km. Achieved using NOK’s 5G extended-range mmWave solution and a 5G CPE powered by QCOM’s Snapdragon X55 5G Model-RF System with QTM527 mmWave on UScellular’s commercial network in Nebraska, this milestone paves the way for  extended range 5G service with massive capacity and low latency to rural, suburban, and urban areas across the U.S. This positions the companies to capitalize on the upcoming 5G era.

During its fiscal second quarter, ended March 28, 2021, QCOM’s non-GAAP revenues increased 52.2% year-over-year to $7.93 billion. The company’s operating income increased 118.6% year-over-year to $2.17 billion. While its non-GAAP net income increased 115.3% year-over-year to $2.19 billion, its EPS increased 115.9% year-over-year to $1.90. The company had $6 billion of cash, cash equivalents and restricted cash  as of March 28, 2021.

Analysts expect QCOM’s EPS to improve 94.9% year-over-year to $1.68 for the current quarter, ending June 30, 2021. The stock surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to improve 54.2% year-over-year for the current quarter, to $7.54 billion. Analysts expect the stock’s EPS to grow at 27.3% per annum over the next five years.

In terms of non-GAAP forward P/E, QCOM is currently trading at 17.18x, which is 34.2% lower than the 26.09x industry average. And in terms of its non-GAAP forward PEG, the stock is currently trading at 0.63x, 65.1% lower than the 1.80x industry average. QCOM has gained 51.7% over the past year and 22.6% over the past nine months. It ended yesterday’s trading session at $135.52.

It’s no surprise that QCOM has an overall B rating, which translates to Buy in our POWR Ratings system.

QCOM has a B grade for Growth, Quality, and Value. In addition to the POWR Ratings grades we’ve just highlighted, one can see QCOM’s ratings for Stability, Momentum, and Sentiment here. QCOM is ranked #6 in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

See also  https://stocknews.com/stock/OSMT/news/

Micron Technology Inc. (MU)

MU designs, manufactures, and sells memory and storage products worldwide. The company operates through computer and networking, mobile, storage, and embedded business units. It sells dynamic random access memory chips (DRAMs), static random access memory chips (SRAMs), flash memory, semiconductor components, and memory modules to a variety of end markets, including 5G communications and mobile, automotive, server and networking, and consumer industries.

On June 1,  MU introduced new memory and storage products based on its industry-leading 176-layer NAND and 1-Alpha DRAM technology, as well as the industry’s first Universal Flash Storage (UFS) 3.1 solution for automotive applications. Amid the high demand for memory and flash chips in the evolving  data economy, MU’s portfolio additions should accelerate data-driven insights and enable new capabilities from the datacenter to the intelligent edge. With power-efficiency improvements for memory enabling longer battery life in consumer devices, MU expects to generate good sales in the near-term.

On March 16, MU introduced updates to its data center portfolio strategy to address growing opportunities for memory and storage hierarchy innovation. MU will increase investment in Compute Express Link (CXL)-enabled memory products that will provide flexible connections between compute, memory and storage. MU plans to apply the knowledge it has gained from the breakthroughs achieved through its 3D XPoint initiative, as well as related engineering expertise and resources, to new types of memory-centric products.

MU’s revenue for its fiscal second quarter, ended March 4, 2021, increased 30% year-over-year to $6.24 billion. The company’s non-GAAP gross profit increased 46.9% year-over-year to $2.05 billion. Its non-GAAP operating income came in at $1.26 billion, up 131.9% from the prior-year period. Its  non-GAAP net income is reported to be $1.13 billion for the quarter, which represents a 118.2% year-over-year improvement. And its non-GAAP EPS increased 117.8% year-over-year to $0.98. As of March 4, 2021, the company had $6.57 billion in cash, cash equivalents and restricted cash.

Analysts expect MU’s EPS to improve 100.1% year-over-year for the current quarter, ending August 31, 2021, to $2.16. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock’s $7.98 billion consensus revenue estimate for the current quarter represents a 31.7% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 63.7% rate per annum over the next five years.

In terms of non-GAAP forward P/E, MU’s 13.78x is 47.2% lower than the 26.09x industry average. Its 6.67x forward EV/EBITDA is 60.3% lower than the 16.8x industry average. MU has gained 58.5% over the past nine months and closed yesterday’s trading session at $79.02.

MU’s POWR Ratings reflect this promising outlook. The stock has a B grade for Value. Click here to see the additional ratings for MU (Growth, Stability, Quality, Sentiment, and Momentum). MU is ranked #40 in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

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INTC shares were trading at $55.83 per share on Thursday afternoon, up $0.57 (+1.03%). Year-to-date, INTC has gained 14.11%, versus a 14.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…

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