Favorable government policies and increased demand across industries fuel the growth of the chip industry. Moreover, the semiconductor industry is boosted by technological developments and the growing use of AI.
So, I think chip stocks Trio-Tech International (TRT), Tower Semiconductor Ltd. (TSEM), and NVIDIA Corporation (NVDA) could be worth adding to your watchlist.
The Semiconductor Industry Association (SIA) reported that global semiconductor sales were $124.5 billion in the second quarter of 2023, a 4.7% rise over the first quarter. Also, global sales in June 2023 reached $41.5 billion, a 1.7% increase month-over-month.
According to Gartner, semiconductors designed to perform artificial intelligence (AI) workloads will provide a $53.4 billion revenue potential for the semiconductor industry in 2023, a 20.9% rise from 2022.
Moreover, the artificial intelligence chip industry is predicted to reach $165 billion by 2030, growing at a 30.3% CAGR.
The global semiconductor market is expected to grow at a 9.2% CAGR until 2028. Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 30.5% returns over the past six months.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Semiconductor & Wireless Chip stocks, beginning with number 3.
Stock #3: Trio-Tech International (TRT)
TRT, together with its subsidiaries, offers manufacturing, testing, and distribution services to the semiconductor industry. It operates through four segments: Manufacturing; Testing Services; Distribution; and Real Estate.
TRT’s trailing-12-month EV/EBIT of 6.36x is 67.7% lower than the industry average of 19.67x. Its trailing-12-month Price/Sales of 0.60x is 77.8% lower than the industry average of 2.71x.
TRT’s trailing-12-month ROCE of 7.47% is 636% higher than the industry average of 1.01%. Its trailing-12-month net income margin of 4.72% is 132.9% higher than the industry average of 2.03%.
TRT’s total current assets came in at $29.73 million for the period that ended March 31, 2023, compared to $29.20 million for the period that ended June 30, 2022. Its total assets came in at $45.37 million, compared to $43.42 million for the same period.
Also, its total current liabilities came in at $10.88 million, compared to $11.93 million.
TRT’s shares have gained 53.3% over the past six months to close the last trading session at $6.90.
TRT’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TRT has an A grade for Growth, Value, and Momentum. Within the Semiconductor & Wireless Chip industry, it is ranked #50 out of 92 stocks. Click here for the additional POWR Ratings for Quality, Stability, and Sentiment for TRT.
Stock #2: Tower Semiconductor Ltd. (TSEM)
Headquartered in Migdal Haemek, Israel, TSM is an independent semiconductor foundry that manufactures and markets analog-intensive mixed-signal semiconductor devices in the United States, Japan, other Asia countries, and Europe.
TSEM’s forward EV/EBITDA multiple of 11.89 is 21.6% lower than the industry average of 15.17. Its forward EV/EBIT multiple of 10.40% is 43.7% lower than the industry average of 18.47.
TSEM’s trailing-12-month net income margin of 17.82% is 779.4% higher than the 2.03% industry average. Its trailing-12-month ROCE of 14.80% is significantly higher than the 1.01% industry average.
For the first half that ended June 30, 2023, TSEM’s operating profit increased 4.6% year-over-year to $139.94 million. The company’s net income increased 9.3% year-over-year to $122.59 million, and EPS came in at $1.10, up 8.9% year-over-year.
Street expects TSEM’s revenue to increase 6.7% year-over-year to $1.53 billion for the year ending December 2024. Its EPS is expected to grow 13.3% year-over-year to $2.35 for the same period. Shares of TSEM have gained 2.3% intraday to close the last trading session at $29.70.
TSEM is ranked #29 in the same industry. It has an A grade for Momentum and a B for Value. To see additional TSEM’s ratings for Growth, Stability, Sentiment and Quality, click here.
Stock #1: NVIDIA Corporation (NVDA)
NVDA propels computation to tackle complex computational problems. Its Compute & Networking arm entails a data center accelerated computing platform, automotive AI cockpit, and advanced networking, whereas the Graphics segment offers GeForce GPUs for gaming, PC, gaming platform solutions, and more.
On August 29, 2023, NVDA and Google Cloud Next, Google Cloud introduced new AI infrastructure and software for clients to build and deploy huge models for generative AI and accelerate data science workloads.
Jensen Huang, founder and CEO NVDA, said, “We’re at an inflection point where accelerated computing and generative AI have come together to speed innovation at an unprecedented pace. Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software and services that supercharge energy efficiency and reduce costs.”
On August 8, 2023, NVDA has announced a major update to its NVIDIA OmniverseTM platform, which includes new foundation apps and services for developers and industrial organizations to optimize and enhance their 3D processes using the OpenUSD framework and generative AI.
NVDA’s forward non-GAAP PEG multiple of 1.37 is 25.2% lower than the industry average of 1.84.
NVDA’s trailing-12-month net income margin of 31.60% is significantly higher than the 2.03% industry average. Its trailing-12-month ROCE of 40.22% is significantly higher than the 1.01% industry average.
NVDA’s net revenue for the second quarter ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. Its non-GAAP operating income came in at $7.78 billion, up 486.9% year-over-year.
Also, its non-GAAP net income and non-GAAP EPS came in at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively.
Analysts expect NVDA’s revenue to increase 100.3% year-over-year to $54.02 billion for the year ending January 2024. Its EPS is expected to grow 224% year-over-year to $10.83 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Over the past year the stock has gained 219.1% to close the last trading session at $493.55.
NVDA has an A grade for Growth and Sentiment and a B grade for Quality. It is ranked #28 in the same industry.
Beyond what is stated above, we’ve also rated NVDA for Momentum, Stability and Value. Get all NVDA ratings here.
What To Do Next?
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NVDA shares were trading at $485.40 per share on Friday afternoon, down $8.15 (-1.65%). Year-to-date, NVDA has gained 232.24%, versus a 18.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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