The demand for semiconductor chips is increasing rapidly across industries. Semiconductor companies worldwide are making significant investments in ramping up production to meet the growing demand. The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing (TSM), plans to invest $100 billion over three years to ramp up production.
“We see capital expenditure nearly doubling over the 2021-2025 5 year period vs. 2016-2020 period,” said Peter Hanbury, a semiconductor analyst at research firm Bain. Moreover, the U.S. House of Representatives passed the America Competes Act last week, allocating $52 billion to boost the semiconductor industry. In addition, semiconductor sales are expected to grow 9% this year to cross $600 billion for the first time.
Given the solid growth prospects of the industry, Wall Street analysts see an 80% to 365% upside potential in semiconductor stocks Rockley kinPhotonics Holdings Limited (RKLY), Pixelworks, Inc. (PXLW), Resonant Inc. (RESN), which are all currently trading below $5.
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Rockley Photonics Holdings Limited (RKLY)
Headquartered in England, the United Kingdom, RKLY develops and supplies silicon photonics worldwide. It offers a mobile platform for various solutions, such as photonic and electronic integrated circuits, sensing algorithms, artificial intelligence, and cloud analytics.
On February 8, RKLY introduced its Bioptx™ platform of biomarker sensing products and solutions for the medical and healthcare market to provide medical institutions the ability to monitor the general wellness of individuals. “Launching the Bioptx product line two years earlier than planned represents a significant step forward in the deployment and commercialization of our biomarker sensing platform and will allow us to develop and refine our algorithms and analytics for the healthcare market more quickly,” said Dr. Andrew Rickman, chairman, and chief executive officer of Rockley.
Last month, RKLY announced the completion of the first stage of its human studies, examining blood pressure measurement using RKLY’s biomarker sensing platform, demonstrating that a photonics-based sensor worn on the wrist can measure blood pressure non-invasively. This marks a key milestone in developing cuffless, non-invasive blood pressure measurement on the wrist.
RKLY’s revenues declined 59.3% year-over-year to $1.84 million in the fiscal third quarter ended September 30. However, its cash and cash equivalents increased 297.2% year-over-year to $75.19 million.
Street expects the company’s revenue to come in at $24.88 million in the fiscal year ending December 2022, indicating an increase of 234.4% year-over-year.
The stock has increased 18.4% over the past month and 30.5% over the past five days to close its last trading session at $4.58.
Of the three Wall Street analysts who rated RKLY, two rated it Buy, while one rated it Hold. The 12-month median price target of $13.00 indicates a 183.8% potential upside. The price targets range from a low of $6.00 to a high of $18.00.
Pixelworks, Inc. (PXLW)
PXLW engages in the development and marketing of semiconductor and software solutions. The company provides video display processor products that comprise image processor ICs, such as embedded microprocessors, digital signal processing technology, and software that control the operations and signal processing within high-end display systems; video co-processor ICs; and transcoder ICs.
Last month, PXLW and OnePlus, a premium global smartphone manufacturer, announced the newly launched OnePlus 10 Pro smartphone, which incorporated the company’s advanced Pro Software solution to bring consistent color accuracy and eye-comfort experience in different viewing conditions. In the same month, PXLW announced that the newly launched iQOO 9 series smartphones incorporated the Pixelworks X5 Pro visual processor to strengthen users' competence in the game battlefield. Such collaborations with these prominent brands demonstrate the company’s solid position in the industry.
PXLW’s revenues increased 72.1% year-over-year to $16.59 million in the fiscal fourth quarter ended December 31. Non-GAAP gross profit grew 90.9% from the year-ago value to $9.12 million.
The consensus revenue estimate of $14.94 million for the fiscal first quarter ending March 2022 indicates an increase of 61.1% year-over-year. Analysts expect the company’s EPS to improve 37.5% year-over-year in the same period.
PXLW shares have gained 4.1% over the past month and 7.5% over the past five days to close the last trading session at $3.57.
The Wall Street analysts that have rated PXLW have rated it Buy. The 12-month median price target of $6.50 indicates an 82.1% potential upside. The price targets range from a low of $5.00 to a high of $8.00.
Resonant Inc. (RESN)
RESN designs and develops filters for radio frequency (RF) and front-ends used in the mobile device, automotive, medical, internet-of-things, and related industries worldwide. It uses Infinite Synthesized Networks technology, a software platform to configure and connect resonators that are building blocks of RF filters.
In November 2021, RESN received payment worth $7 million for its initial prepaid royalties attributed to the multi-year commercial partnership with the world’s largest RF Filter manufacturer to design RF filters for next-generation networks. “These payments are a part of a series of prepaid royalties for the first of four new RF filter designs, representing the advancement of our XBAR® partnership,” said George B. Holmes, Chairman and CEO of Resonant.
RESN’s net revenues declined 69.8% year-over-year to $425 thousand in the fiscal third quarter ended September 30. Also, its net loss grew 48.2% from the year-ago value to $8.98 million.
The consensus revenue estimate of $1.72 million for the fiscal fourth quarter ended December 2021 indicates an increase of 184% year-over-year. Street expects RESN’s EPS to improve 3.5% year-over-year. Moreover, RESN has beaten Street EPS estimates in three of the trailing four quarters.
The stock has declined 5% intraday to close its last trading session at $1.32.
The Wall Street analysts that have rated RESN have rated it Buy. The 12-month median price target of $6.13 indicates a 364.4% potential upside. The price targets range from a low of $6.00 to a high of $6.25.
RKLY shares were trading at $4.21 per share on Friday afternoon, down $0.37 (-8.08%). Year-to-date, RKLY has declined -3.22%, versus a -7.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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