Semiconductors have become increasingly important in today’s tech-driven world. The semiconductor industry is thriving due to its expanding applications across sectors and the increasing adoption of emerging technologies.
Amid this backdrop, it could be wise to add fundamentally strong semiconductor stocks Nikon Corporation (NINOY), inTEST Corporation (INTT), and STMicroelectronics N.V. (STM) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the semiconductor industry is well-positioned for growth.
The thriving semiconductor industry serves critical roles in consumer electronics, automotive, healthcare, telecommunications, data centers, and defense. Worldwide semiconductor revenue declined 11.1% year-over-year to $533 billion in 2023. The underperformance was driven by reduced demand for smartphones and weakness in the data center/hyperscaler spending and PC market.
However, global semiconductor revenue is projected to grow 16.8% in 2024 to $624 billion. Gartner believes that revenue for all chip types will witness a bounce-back this year, with the worldwide memory market seeing double-digit growth.
The semiconductor industry is using nanotechnology and new materials to produce better chips. High-performance chips are in strong demand due to the growing smartphone market and improving user experiences. Apart from its usual applications, the industry’s growth will be bolstered by the high demand for high-performance GPUs that power generative AI and large language models.
The global semiconductor market is projected to expand at a CAGR of 12.3% to reach around $1.88 trillion by 2032.
Considering these conducive trends, let’s analyze the fundamentals of the three Semiconductor & Wireless Chip picks, beginning with the third choice.
Stock #3: Nikon Corporation (NINOY)
Headquartered in Minato, Japan, NINOY manufactures and sells optical instruments in Japan, North America, Europe, China, Thailand, and internationally. It operates through the Imaging Products Business, Precision Equipment Business, Healthcare Business, Components Business, Industrial equipment, and other segments.
On January 25, 2024, NINOY announced the establishment of new research hubs, the Nikon BioImaging Lab Lexington in Massachusetts, USA, and the Nikon Healthcare R&D Center in Shonan, Japan, focusing on drug discovery support and innovation.
These facilities aim to provide advanced technologies, including AI-enhanced image processing, spatial omics, and 3D cell culture systems, to drive efficient drug discovery efforts worldwide.
On January 9, 2024, NINOY announced a collaboration with AFP to verify the implementation of an image provenance function in Nikon cameras, aiming to enhance image authenticity and streamline fact-checking processes, with plans to incorporate electronic watermarking technology to improve reliability in news photography.
In terms of the trailing-12-month EBITDA margin, NINOY’s 11.90% is 9.4% higher than the 10.88% industry average. Likewise, its 44.57% trailing-12-month gross profit margin is 26% higher than the 35.39% industry average. Furthermore, the stock’s 5.34% trailing-12-month net income margin is 18.1% higher than the 4.52% industry average.
NINOY’s revenue for the six months that ended September 30, 2023, increased 14.9% year-over-year to ¥331.30 billion ($2.25 billion). Its gross profit rose 7.5% over the prior-year quarter to ¥142.07 billion ($963.26 million). Also, the company’s profit for the period and EPS came in at ¥9.33 billion ($63.26 million) and ¥28.15, respectively.
For the quarter ending June 30, 2024, NINOY’s revenue is expected to increase 0.9% year-over-year to $1.11 billion. Over the past three months, the stock has gained 4.9% year-to-date to close the last trading session at $10.11.
NINOY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, and Stability. It is ranked #13 out of 91 stocks in the Semiconductor & Wireless Chip industry. To see NINOY’s Growth, Sentiment, and Quality ratings, click here.
Stock #2: inTEST Corporation (INTT)
INTT supplies test and process solutions to various industries worldwide, including automotive, defense/aerospace, industrial, life sciences, security, and semiconductors. The company operates through three segments: Electronic Test, Environmental Technologies, and Process Technologies.
On December 14, 2023, INTT launched the next generation of induction heating systems, the EKOHEAT 2 family, boasting the world's most advanced feature set, including Advanced Internal Monitoring for enhanced process heating accuracy and efficiency.
In terms of the trailing-12-month EBIT margin, INTT’s 10.94% is 137% higher than the 4.62% industry average. Its 13.36% trailing-12-month EBITDA margin is 45.3% higher than the 9.20% industry average. Likewise, its 15.25% trailing-12-month Return on Common Equity is 774.1% higher than the industry average of 1.74%.
For the fiscal third quarter, which ended on September 30, 2023, INTT’s revenue increased marginally year-over-year to $32.66 million. Its net earnings came in at $2.97 million, up 17.5% over the prior-year quarter. The company’s adjusted EPS for the same period stood at $0.28. Moreover, its adjusted EBITDA increased 2.9% year-over-year to $4.58 million.
For the fiscal year ended December 31, 2023, INTT’s revenue is expected to increase 8.1% year-over-year to $126.27 million. It surpassed the consensus EPS estimates in each of the four trailing four quarters. Over the past three months, the stock has declined 2.7% to close the last trading session at $12.58.
INTT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Momentum and a B for Sentiment. It is ranked #9 in the same industry. To access INTT’s grades for Growth, Stability, and Quality, click here.
Stock #1: STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM and its subsidiaries design, develop, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, and Sensors Group, and Microcontrollers and Digital ICs Group segments.
On January 29, 2024, STM announced the release of TSZ151 operational amplifiers, featuring low offset voltage and minimal temperature drift, catering to high-accuracy sensing applications like industrial power supplies and automotive signal conditioning.
On January 18, 2024, STM unveiled the EVLSPIN32G4-ACT, a motor-drive reference design facilitating smart actuator development, integrating the STSPIN32G4 motor driver with STWIN.box for real-time environmental analysis and IoT connectivity, enabling intelligent motion control applications.
In terms of the trailing-12-month EBITDA margin, STM’s 35.41% is 285.1% higher than the 9.20% industry average. Likewise, its 24.36% trailing-12-month net income margin is significantly higher than the 2.04% industry average. Furthermore, the stock’s 26.56% trailing-12-month EBIT margin is 475.3% higher than the 4.62% industry average.
STM’s net revenues for the fourth quarter ended December 31, 2023, came in at $4.28 billion. Its gross profit came in at $1.95 billion. Its operating income stood at $1.02 billion. Additionally, the company’s net income and EPS stood at $1.08 billion and $1.14, respectively.
Analysts expect STM’s EPS and revenues for the fiscal year ending December 31, 2025, to increase 27.6% and 9.1% year-over-year to $3.85 and $17.58 billion, respectively. It surpassed the consensus estimates in three of the trailing four quarters. Over the past three months, the stock has gained 12% to close the last trading session at $44.34.
It’s no surprise that STM has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #7. In total, we rate STM on eight different levels. Beyond what we stated above, we also have given STM grades for Growth, Momentum, Stability, and Sentiment. Get all the STM ratings here.
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STM shares were trading at $44.33 per share on Wednesday morning, down $0.01 (-0.02%). Year-to-date, STM has declined -11.57%, versus a 2.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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