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Forget Advanced Micro Devices, Buy These 4 Semiconductor Stocks Instead

Forget Advanced Micro Devices, Buy These 4 Semiconductor Stocks Instead

Posted On November 23, 2021 2:24 pm
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Since 2014, CEO Lisa Su’s leadership has helped chipmaker Advanced Micro Devices Inc. (AMD – Get Rating) make a strong comeback from bankruptcy.  The company has gained over 1,680% over the past five years. Consistent product innovations have made AMD a rival to Intel Corporation (INTC) in the CPU market and NVIDIA Corporation (NVDA) in the GPU market. Also, the company has recently been awarded a contract from Meta Platforms, Inc. (FB) to provide its EPYC chip processors to power its data center computers.

This, combined with its better-than-expected results in the third quarter, has helped the stock gain investor attention over the past month, as evident from its 33.6% gain during the period. However, a Northland Securities analyst has downgraded the stock recently on concerns over lower demand for its semiconductors, high inflation, and INTC’s yet-to-launch Alder Lake lineup of processors. These factors could lead to AMD witnessing a slowdown next year. In addition, given its lofty valuation and rising mentions on the r/WallStreetBets dashboard, analysts expect AMD to witness a pullback in the near term.

Despite the global chip shortage, the industry witnessed 27.6% year-over-year sales growth in the third quarter. Rising government and corporate investments and various measures to address this crisis will likely improve the situation by the second half of 2022. Moreover, innovation in the chipmaking process and manufacturing of advanced chips should foster the industry’s growth. Investor optimism in this space is evident from the SPDR S&P Semiconductor ETF’s (XSD) 18.3% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 4.1% returns. The global semiconductor market is expected to grow at a 7.7% CAGR to $778 billion by 2026.

Taiwan Semiconductor Manufacturing Company Limited (TSM – Get Rating), Broadcom Inc. (AVGO – Get Rating), Qualcomm Incorporated (QCOM – Get Rating), and Micron Technology, Inc. (MU – Get Rating) are well-positioned to capitalize on the industry tailwinds based on their latest developments and solid quarterly financials. So, we think these stocks are better investments than AMD now.

Taiwan Semiconductor Manufacturing Company Limited (TSM – Get Rating)

TSM is a Taiwan-based company that manufactures, sells, and packages integrated circuits and other semiconductor devices and provides computer-aided design services. The company provides wafer manufacturing, probing, assembly, testing, mask production, and design services. It serves customers in the computer, communications, consumer, and industrial and standard segments worldwide.

On November 9, 2021, TSMC announced the establishment of its Japan Advanced Semiconductor Manufacturing, Inc. (JASM) subsidiary in Kumamoto, Japan, to provide foundry service with initial technology of 22/28-nanometer processes for addressing the surging market demand for specialty technologies, with Sony Group Corporation’s (SONY) Sony Semiconductor Solutions Corporation (SSS) being a minority shareholder. Given the strong support from the Japanese government, both companies are looking forward to contributing to the stable supply of logic wafers in the markets.

On October 26, 2021, TSM introduced its N4P process, the third major enhancement of TSM’s 5-nanometer technology family, which delivers an improved performance boost, power efficiency, and transistor density over the original N5 and N4 technology. Also, it lowers process complexity and improves wafer cycle time by reducing the number of masks. This breakthrough should help e TSM to secure widespread recognition across the industry.

 

 

TSM’s net revenue for its fiscal third quarter, ended September 30, 2021, increased 16.3% year-over-year to $14.88 billion. The company’s gross profit came in at $7.63 billion, up 11.7% from the prior-year period. Its income from operations increased 14% year-over-year to $6.14 billion. While its net income increased 13.9% year-over-year to $5.61 billion, its earnings per ADR increased 13.8% to $1.08. As of September 30, 2021, the company had $30.64 billion in cash and cash equivalents.

Analysts expect TSM’s EPS to improve 21.2% year-over-year to $4.11 in the current year. The consensus revenue estimate of $56.81 billion for the current year represents a 24.8% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters. The stock’s EPS is expected to grow at a rate of 15.8% per annum over the next five years.

The stock has gained 28.6% in price over the past year and 6.2% over the past month. It closed Friday’s trading session at $124.26.

TSM’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an A grade for Quality, and a B grade for Momentum, Stability, and Sentiment. Click here to see the additional ratings for TSM (Growth and Value). Of the 102 stocks in the A-rated Semiconductor & Wireless Chip industry, TSM is ranked #54.

Broadcom Inc. (AVGO – Get Rating)

AVGO designs, develops, and supplies a range of analog and digital semiconductor connectivity solutions and infrastructure software solutions. The company develops semiconductor devices focusing on complex digital and mixed-signal complementary metal-oxide-semiconductor (CMOS) based devices and analog III-V based products. Its products are used in data center networking, home connectivity, broadband access, telecommunications equipment, smartphones, and base stations.

On November 9, 2021, Meta Platforms, Inc. (FB) announced it will deploy AVGO’s Broadcom StrataXGS Tomahawk 4 switch series, the world’s highest bandwidth Ethernet switch chip, into its…

 

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