High prices and consecutive federal rate hikes, and a slowing economy have marred the optimal performance of the semiconductor and chip industry. The U.S. PC market declined 17.3% in the third quarter of 2022, marking the fifth consecutive quarter of year-over-year shipment decline. The semiconductor industry is struggling with slowing demand.
However, the industry looks poised for long-term growth. Increasing consumption of consumer electronics devices and the development of artificial intelligence, the Internet of Things, and machine learning technologies are providing new market opportunities.
Moreover, the Biden administration has allotted $52 billion for chip manufacturing under the CHIPS and Science Act. This lucrative investment is expected to boost the domestic semiconductor sector. Investors’ interest in semiconductor stocks is evident from the SPDR S&P Semiconductor ETF’s (XSD) 22.5% gains over the past month.
Furthermore, according to Allied Market Research, the global semiconductor market is projected to expand at a CAGR of 6.2% from 2022 to 2031.
Given the backdrop, fundamentally sound semiconductor stocks Broadcom Inc. (AVGO) and STMicroelectronics N.V.(STM) could now be solid additions to your portfolio.
Broadcom Inc. (AVGO)
AVGO creates, manufactures, and distributes a range of semiconductor products focusing on analog III-V-based products and complicated digital and mixed signal complementary metal oxide semiconductor-based devices globally. The company operates in two segments, Semiconductor Solutions and Infrastructure Software.
Last month, AVGO’s ValueOps solution, Rally Software®, achieved Federal Risk and Authorization Management Program (FedRAMP) authorization for federal agencies and departments procuring cloud services. This federal authorization marks a significant milestone for the company.
On October 13, 2022, AVGO announced the expansion of its silicon, software, and hardware storage connectivity products with enhanced performance, capabilities, and power to aid interoperability and support for the ecosystem. This is expected to bolster the company’s market positioning.
AVGO’s net revenues came in at $8.46 billion for the third quarter that ended July 31, 2022, up 24.9% year-over-year. Moreover, its net income came in at $3 billion, up 66.4% year-over-year. Also, its EPS came in at $7.15, up 70.2% year-over-year.
Analysts expect AVGO’s revenue to increase 20.9% year-over-year to $33.18 billion in 2022. Its EPS is expected to increase 33.7% year-over-year to $37.44 in 2022. It surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained 18.5% to close the last trading session at $515.16.
AVGO’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AVGO has an A grade for Quality and a B grade for Growth and Sentiment. In the Semiconductor & Wireless Chip industry, it is ranked #7 out of 92 stocks.
Click here for the additional POWR Ratings for Value, Momentum, and Stability for AVGO.
STMicroelectronics N.V.(STM)
Headquartered in Geneva, Switzerland, STM, and its subsidiaries create, develop, produce, and distribute semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. It has three segments: the Automotive and Discrete Group; the Analog, MEMS, and Sensors Group; and the Microcontrollers and Digital I.C.s Group.
On November 9, 2022, STM announced that its ST54K I.C. would handle the control and security for contactless NFC communication in the newly launched Google Pixel 7 smartphone.
Marie-France Li-Saï Florentin, Microcontrollers & Digital I.C.s Group Vice President, Secure Microcontroller Division General Manager, STM, said, “Google chose the ST54K for its excellent performance, low power and robust security that meets the highest CC EAL5+ assurance.”
STM’s net revenues came in at $4.32 billion for the third quarter that ended October 1, 2022, up 35.2% year-over-year. Its net income increased 131.3% year-over-year to $1.1 billion, while its EPS came in at $1.16, up 127.5% year-over-year.
STM’s revenue is expected to increase 26.3% year-over-year to $16.11 billion in 2022. Its EPS is estimated to increase 85.2% year-over-year to $4 in 2022. It has surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained 19.4% to close the last trading session at $38.31.
STM’s overall A rating indicates a Strong Buy in our proprietary rating system. The stock has a B grade in Growth, Value, Sentiment, and Quality. It is ranked #3 in the same industry.
Click here for the additional POWR Ratings for Momentum and Stability for STM.
AVGO shares were trading at $516.40 per share on Monday morning, up $1.24 (+0.24%). Year-to-date, AVGO has declined -20.56%, versus a -16.13% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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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