4 Semiconductor Stocks to Buy Hand Over Fist for 2023

The semiconductor industry witnessed a decline in its performance last year in the face of aggressive interest rate hikes by the Fed and escalating tensions between the United States and China.

The Semiconductor Industry Association (SIA) announced global semiconductor industry sales were $45.50 billion during November 2022, a decrease of 2.9% compared to October 2022 and a decline of 9.2% year-over-year.

However, the CHIPS Act, signed into law last August, directs $280 billion in spending over the next ten years to boost competitiveness, innovation, and national security in the U.S. semiconductor industry, which should keep the sector buoyed for the long term.

Furthermore, technological advancements and the integration of technology in the new digital ecosystem, such as AI, 5G, AR/VR, and automatic electric cars, are driving the semiconductor industry's growth. The global semiconductor market is expected to hit $1.03 trillion by 2031, registering a CAGR of 6.2% from 2022 to 2031.

Against this backdrop, fundamentally strong semiconductor stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Broadcom Inc. (AVGO), STMicroelectronics N.V. (STM), and Photronics, Inc. (PLAB) might be solid additions to your portfolio now.

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices globally. The company’s products are used in mobile devices, high-performance computing, automotive electronics, and IoT markets.

On December 6, 2022, TSM announced that in addition to its first fab in Arizona, which is set to begin production in 2024, it has also started the construction of a second fab, scheduled to begin production in 2026. Upon completion, TSMC Arizona’s two fabs are expected to manufacture over 600,000 wafers annually, with a forecasted end-product value of more than $40 billion.

On November 8, TSM announced a NT$2.75 per share cash dividend distribution for the third quarter of 2022. This reflects the company’s strong cash generation ability. The company also announced capital appropriations of approximately $5.72 billion for several purposes, including technology installation.

For the fiscal third quarter that ended September 30, TSM’s net revenue increased 47.9% year-over-year to $20.23 billion. Income from operations grew 81.5% from the prior-year quarter to $10.24 billion. Its net income and earnings per ADR came in at $9.27 billion and $1.79, up 79.6% and 79.8% year-over-year, respectively.

The consensus revenue estimate of $18.08 billion for the fiscal first quarter ending March 2023 indicates a 7% year-over-year increase. Likewise, the company’s EPS is estimated to come in at $1.32 for the same quarter. It surpassed EPS estimates in all four trailing quarters, which is impressive.

TSM has gained 15.1% over the past three months to close its last trading session at $80.31. Moreover, it has gained 2.9% intraday.

TSM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

TSM has an A grade for Quality and a B for Growth and Sentiment. TSM is ranked #12 in the B-rated 93-stock Semiconductor & Wireless Chip industry.

Click here to see the additional POWR Ratings for TSM (Value, Momentum, and Stability).

Broadcom Inc. (AVGO)

AVGO develops and distributes semiconductor and infrastructure software solutions. It operates through two segments, Semiconductor Solutions; and Infrastructure Software. AVGO’s mainframe software provides DevOps, AIOps, Security, and Data Management Systems solutions.

On December 15, 2022, AVGO announced the availability of CA 1 Flexible Storage, a new solution enabling enterprises to store their mainframe data anywhere they choose, including the Cloud. The new solution should add to the company’s top line.

AVGO paid a quarterly cash dividend on its common stock on December 30, 2022, to common stockholders of $4.60 per share, indicating a 12% increase for the fiscal year 2023. The target fiscal 2023 annual dividend is $18.40 per share. This reflects the company’s ability to pay its shareholders.

For the fourth quarter of fiscal 2022, which ended October 31, 2022, AVGO’s net revenue increased 20.6% year-over-year to $8.93 billion. Its adjusted EBITDA rose 25.8% year-over-year to $5.72 billion, while its non-GAAP net income came in at $4.54 billion, up 29.8% from its year-ago period. AVGO’s non-GAAP EPS stood at $10.45, indicating a 33.8% year-over-year increase.

Street revenue estimate of $8.90 billion for the fiscal first quarter (ending January 31, 2023) represents a 15.5% increase year-over-year. Street EPS estimate of $10.18 for the current quarter represents a 21.4% increase from the prior-year quarter. The company has an impressive earnings surprise history, as it surpassed consensus EPS estimates in each of the trailing four quarters.

Shares of AVGO have gained 25.3% over the past three months to close the last trading session at $576.89. It has gained 5.9% over the past month.

AVGO’s POWR Ratings reflect its strong outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock has an A grade for Quality and a B for Sentiment. Within the Semiconductor & Wireless Chip industry, AVGO is ranked #11.

Click here to see additional POWR ratings for Growth, Value, Stability, and Momentum for AVGO.

STMicroelectronics N.V. (STM)

STM is a semiconductor company headquartered in Geneva, Switzerland. The company develops, manufactures, and markets a range of semiconductor products. It has three segments: Automotive and Discrete Group (ADG); Analog, MEMS, and Sensors Group (AMS); and Microcontrollers and Digital ICs Group (MDG).

On January 3, STM updated the details of the share repurchase program approved by a shareholder resolution and by the supervisory board. A total of 46,950 ordinary shares (equal to 0.01% of its issued share capital) at the weighted average purchase price per share of €33.39 ($35.37) were acquired between December 27 and December 28, 2022.

This program demonstrates the company’s confidence in its prospects, and it is expected to increase the intrinsic value of the holdings of existing shareholders.

On December 1, 2022, STM and Soitec (Euronext Paris), an innovative semiconductor materials designer and manufacturer, announced the next stage of their collaboration through the qualification of Soitec’s Silicon Carbide (SiC) substrate technology by ST planned over the next 18 months. This is expected to improve STM’s manufacturing yields and quality.

For the fiscal 2022 third quarter that ended October 1, 2022, STM’s net revenues increased 35.2% year-over-year to $4.32 billion, while its operating income increased 110.2% to $1.27 billion. The company’s net income increased 131.9% year-over-year to $1.10 billion during the same period. Earnings per share attributable to parent company stockholders stood at $1.16 per share, up 127.5% year-over-year.

STM’s revenue and EPS for the first quarter ending March 2023 are expected to increase 8.9% and 10.7% year-over-year to $3.86 billion and $0.87, respectively. Additionally, it has a history of surpassing EPS estimates in each of the trailing four quarters.

The stock has gained 20.9% over the past three months to close the last trading session at $39.57. It has gained 3.8% intraday.

It is no surprise that STM has an overall A rating, equating to a Strong Buy in our POWR Ratings system.

STM has a B grade for Growth, Value, Sentiment, and Quality. It is ranked third within the same industry. 

Click here to access the additional POWR Ratings for Momentum and Stability for STM.

Photronics, Inc. (PLAB)

PLAB produces and sells photomask goods and services in the United States, Taiwan, Korea, Europe, China, and other countries. The company offers photomasks to manufacture integrated circuits and flat panel displays (FPDs) and for transferring circuit patterns onto semiconductor wafers, FDP substrates, and various types of electrical and optical components.

In terms of its forward P/E, PLAB is trading at 9.02x, 62.2% lower than the industry average of 23.86x. The stock’s forward EV/EBITDA multiple of 3.15 is 75.9% lower than the 13.08 industry average.

The stock’s trailing-12-month EBIT margin of 25.70% is 288% higher than the industry average of 6.62%. Also, its trailing-12-month net income margin of 14.41% is 347.1% higher than the industry average of 3.22%.

PLAB’s total revenues came in at $210.27 million for the fourth quarter of fiscal 2022, which ended October 31, 2022, up 16% year-over-year. Moreover, net income attributable to PLAB shareholders came in at $37.06 million, up 87.1% year-over-year. Also, its EPS came in at $0.60, up 81.8% year-over-year.

For the fiscal first quarter ending January 2023, PLAB’s revenue is expected to increase 9.6% year-over-year to $208 million. Street expects its EPS to grow 15.8% year-over-year to $0.44 in the same quarter. It surpassed EPS estimates in all four trailing quarters, which is impressive.

Over the past three months, the stock has gained 15.4% to close the last trading session at $17.91. Moreover, the stock has gained 6.4% over the past five days.

PLAB’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our POWR Ratings system.

It has an A grade for Value and a B for Quality. It is ranked #7 in the Semiconductor & Wireless Chip industry.

Beyond what is stated above, we’ve also rated PLAB for Growth Momentum, Stability, and Sentiment. Get all PLAB ratings here.

TSM shares were trading at $81.09 per share on Tuesday morning, up $0.78 (+0.97%). Year-to-date, TSM has gained 8.86%, versus a 1.95% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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