The chip industry is anticipated to thrive in today’s tech-driven era amid lucrative government support and continuous technological advancements, leading to advanced chips that cater to various requirements.
Amid this backdrop, investors could consider adding chip stocks KLA Corporation (KLAC), STMicroelectronics N.V. (STM), and ASE Technology Holding Co., Ltd. (ASX) to their watchlist. Before exploring the fundamentals of these stocks, let’s first understand what’s shaping the chip industry’s prospects.
The global semiconductor industry is witnessing a surge in demand, given the rise of artificial intelligence (AI) and high-performance computing (HPC). These advanced technologies need greater processing power to work efficiently, so companies are developing cutting-edge chips.
Moreover, the proliferation of smartphones, computers, and data centers is also spurring demand for chips. The worldwide sales of semiconductors amounted to $137.70 billion in the first quarter of 2024, representing a 15.2% increase year-over-year.
Expansions in cutting-edge logic and foundry capacity, generative AI and high-performance computing (HPC) applications, and resurgent end-demand for chips expand the opportunity window for further expansion in the chip industry. The global capital expenditure in the semiconductor industry is anticipated to hit $2.30 trillion by 2032.
The global semiconductor market will reach $2.06 trillion by 2032, growing at a 14.9% CAGR.
With these favorable trends in mind, let's delve into the fundamentals of the three Semiconductor & Wireless Chips stocks, starting with the one ranked lower in our proprietary rating system.
Stock #3: KLA Corporation (KLAC)
KLAC designs, manufactures, and markets process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. It operates through three segments: Semiconductor Process Control, Specialty Semiconductor Process, and PCB, Display and Component Inspection.
KLAC’s trailing-12-month net income margin of 27.19% is 924.3% higher than the industry average of 2.65%. Likewise, trailing-12-month Return on Common Equity and Return on Total Assets of 90.35% and 17.45% are considerably higher than the industry averages of 3.99% and 1.56%, respectively.
KLAC’s total revenues for the fiscal third quarter that ended March 31, 2024, declined 3% year-over-year to $2.36 billion. Moreover, its non-GAAP net income attributable to KLAC stood at $715.14 million, down 6% from the year-ago quarter.
Also, its non-GAAP net income per share attributable to KLAC declined 4.2% over the prior-year quarter to $5.26. However, its cash and cash equivalents at end of period grew 17.8% year-over-year to $1.85 billion.
Analysts expect KLAC’s revenue for the quarter ending June 30, 2024, to increase 7% year-over-year to $2.52 billion. Its EPS for fiscal 2024 is expected to decline 7.7% year-over-year to $23.43. The company surpassed the Street revenue and EPS estimates in each of the trailing four quarters, which is impressive. Over the past year, the stock has gained 71.4%, closing the last trading session at $784.97.
KLAC’s POWR Ratings reflect its mixed prospects. It has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
KLAC has a C grade for Growth, Stability, and Sentiment. Within the Semiconductor & Wireless Chips industry, it is ranked #19 out of 93 stocks. Click here for the additional POWR Ratings of KLAC (Value, Momentum, and Quality).
Stock #2: STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM designs, develops, manufactures, and sells semiconductor products internationally. The company operates through the Automotive and Discrete Group, Analog, MEMS and Sensors Group, Microcontrollers, and Digital ICs Group segments.
On June 4, 2024, STM announced a long-term SiC supply agreement with Geely Auto Group to enhance powertrain efficiency for battery electric vehicles (BEVs). They also established an Innovation Joint Lab to develop smart, electrified, and connected automotive technologies. This agreement will allow STM to support automotive innovation and transformation in China.
On May 31, 2024, STM announced plans to build a fully integrated silicon carbide facility in Catania, Italy, with a projected €5 billion ($5.44 billion) investment supported by the State of Italy.
The facility, scheduled to start production in 2026 and reach full capacity by 2033, aims to enhance STM's SiC technology leadership in the automotive and industrial sectors, focusing on electrification and energy efficiency solutions.
STM’s trailing-12-month gross profit margin of 44.88% is 9.5% lower than the industry average of 49.58%. On the other hand, its trailing-12-month EBIT margin and EBITDA margin of 24.95% and 34.74% are 425.3% and 254.8% higher than the industry averages of 4.75% and 9.79%, respectively.
For the fiscal first quarter that ended March 30, 2024, STM’s net revenues declined 18.4% year-over-year to $3.47 billion. For the same quarter, its net income attributable to parent company stockholders and earnings per share attributable to parent company stockholders stood at $513 million and $0.54, down 50.9% each from the year-ago quarter, respectively.
As of March 30, 2024, STM’s total assets amounted to $24.97 billion, compared to $24.45 billion as of December 31, 2023.
Street expects STM’s fiscal 2025 EPS to increase 39.9% year-over-year to $3.03. Its revenue for the quarter ending June 30, 2024, is expected to decline 24.4% year-over-year to $3.27 billion. STM’s stock has declined 11.5% year-to-date, closing the last trading session at $44.37.
STM’s POWR Ratings reflect this uncertain outlook. It has an overall rating of C, equating to Neutral in our proprietary rating system.
STM has a C grade for Momentum, Stability, and Sentiment. It is ranked #17 in the same industry. Get STM’s Growth, Value, and Quality ratings here.
Stock #1: ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX provides semiconductor packaging and testing and electronic manufacturing services in the U.S., Taiwan, Asia, Europe, and internationally.
On May 29, 2024, ASX’s ASE Semiconductor announced the launch of powerSiP, an innovative power supply platform that can reduce signal and transmission losses while solving the present current density challenge.
The powerSiP platform provided an option to place the voltage regulator directly under the SoC and chiplets, and vertical integration allowed a large current supply at a short power delivery path.
ASX’s trailing-12-month levered FCF margin of 4.09% is 59.5% lower than the industry average of 10.08%. However, its trailing-12-month Return on Common Equity and Return on Total Capital of 11.25% and 5.22% are 182.1% and 100.2% higher than the industry averages of 3.99% and 2.61%, respectively.
ASX’s total net revenues for the fiscal first quarter that ended March 31, 2024, increased 1.5% year-over-year to NT$132.80 billion ($4.10 billion). The company’s gross profit rose 7.9% from the year-ago quarter to NT$20.87 billion ($645 million).
On the other hand, its net income attributable to shareholders of the parent stood at NT$5.68 billion ($175.62 million) and NT$1.28 per share, down 2.3% and 1.5% over the prior-year quarter, respectively.
For the quarter ending September 30, 2024, ASX’s revenue is expected to increase 8.6% year-over-year to $5.16 billion. Its EPS for the quarter ending June 30, 2024, is expected to decline 8% year-over-year to $0.11. The stock has gained 37.8% over the past year to close the last trading session at $10.94.
ASX’s mixed fundamentals are reflected in its POWR Ratings. It has an overall rating of C, equating to Neutral in our proprietary rating system.
It has a C grade for Stability, Sentiment, and Quality. It is ranked #16 in the Semiconductor & Wireless Chips industry. Click here to see ASX’s rating for Growth, Value, and Momentum.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KLAC shares were trading at $778.27 per share on Thursday morning, down $6.70 (-0.85%). Year-to-date, KLAC has gained 34.46%, versus a 12.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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