Over the past two years, acute semiconductor chip shortages due to supply chain disruptions have caused a significant revenue decline in the global market. Although the supply chain challenges are expected to remain this year, the industry’s ‘crucial’ status in the operation of several sectors makes its prospects bright. The semiconductor market is expected to grow at a 9.25% CAGR to $893.10 billion by 2029.
Rising demand for consumer electronics, advancements in Artificial Intelligence (AI), IoT, and wirelessly connected devices, and increased demand for integrated circuits in developing economies should boost the semiconductor market’s growth. Furthermore, rapid digital transformation across almost every industry is creating new markets for the semiconductor industry.
Given this backdrop, we think it could be wise to buy these growth stocks in the semiconductor industry: Micron Technology, Inc. (MU), United Microelectronics Corporation (UMC), and QUALCOMM Incorporated (QCOM). They each look undervalued at their current price levels.
Micron Technology, Inc. (MU)
MU designs, manufactures, and sells memory and storage products worldwide. The Boise, Idaho, company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.
On May 31, MU announced the forthcoming availability of two new consumer storage products, the Crucial P3 Plus Gen4 NVMe and Crucial P3 NVMe solid-state drives (SSDs). These products should expand its award-winning Crucial NVMe SSD product portfolio, provide consumers with faster, affordable, and reliable choices, and enhance its revenue stream.
On April 12, MU announced the bulk production of its new 16Gb GDDR6X memory with twice the capacity and up to 15% higher performance over the previous 8Gb version. These additional capabilities will provide razor-sharp visuals, higher frame rates, and outstanding performance in memory-intensive applications like gaming. MU’s continued performance leadership and innovation should expand its customer base.
MU’s revenue increased 24.9% from the prior-year quarter to $7.79 billion in its fiscal second quarter, ended March 3, 2022. The company’s gross margin for the quarter came in at $3.68 billion, reflecting an increase of 122.9% year-over-year, while its operating income stood at $2.55 billion, up 284% year-over-year. The company’s EPS came in at $2, up 277.4% from the prior-year quarter. Its total assets and revenue have increased at CAGRs of 10.3% and 1.3%, respectively, over the past three years.
In terms of its forward EV/Sales, MU is currently trading at 2.20x, which is 24.4% lower than the 2.91x industry average. Its 3.90 forward EV/EBITDA multiple is 69.4% lower than the 12.76 industry average.
The $2.47 consensus EPS estimate for its fiscal quarter ended May 31, 2022, represents a 31.4% improvement year-over-year. The $8.69 billion consensus revenue estimate for the same quarter represents a 17.2% increase from the same period last year. It has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.
MU has slumped 24.4% in price year-to-date to close the last trading session at $70.45.
MU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MU also has an A grade in Value and a B in Quality, Momentum, and Growth. It is ranked #10 of 95 stocks in the B-rated Semiconductor & Wireless Chip industry.
Beyond what is stated above, we have also rated MU for Stability and Sentiment. Get all the MU ratings here.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a semiconductor wafer foundry in Taiwan, the United States, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services.
UMC’s operating revenues increased 34.7% year-over-year to NT$63.42 billion ($2.16 billion) in its fiscal first quarter of 2022. Its gross profit grew 120.1% from its year-ago value to NT$27.50 billion ($0.94 billion), while its operating income improved 193% year-over-year to NT$22.33 billion ($0.76 billion). Its EPS increased 89.4% from its year-ago value to NT$1.61. Its EBITDA and its net income have increased at CAGRs of 27% and 137.3%, respectively, over the past three years.
In terms of its forward EV/EBIT, UMC is currently trading at 5.81x, which is 63.9% lower than the16.11x industry average. Its 2.44 forward Price/Sales multiple is 17.3% lower than the 3.00 industry average.
UMC’s revenue for the current quarter is expected to come in at $2.29 billion, indicating 25.8% year-over-year growth. The company’s EPS is expected to…
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