Three Semiconductor Stocks to Hold as the Market Rebounds
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Three Semiconductor Stocks to Hold as the Market Rebounds

Although cyclical, semiconductor sector demand keeps rising. Which chip suppliers will power the future?
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Over the week, the Philadelphia Semiconductor Index (SOX) went up 8.12%. The index is weighted across the largest 30 semiconductor companies responsible for designing and manufacturing the digital life as we know it.

For comparison, the broadest market benchmark, S&P 500 (SPX), is up 1.75% for the same period. The world’s largest chip manufacturer, Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), is already up 11.3% since the beginning of the year.

Providing chip wafer fabrication for both Nvidia (NASDAQ: NVDA) and Apple (NASDAQ: AAPL), TSMC’s outlook for 2024 forecasts a minimum of 20% revenue growth. For Q1, TSMC increased its revenue forecast to $18.8 billion vs the prior expectation of $18.2 billion.

This signals to investors that chip demand will not let up soon. 

Mark Zuckerberg confirmed this on Thursday by stating that Meta Platforms (NASDAQ: META) will acquire 350,000 H100 GPUs by the end of 2024. Departing from the metaverse investment spree, Mr. Zuckerberg is now fully committed to generative AI as “our biggest investment area in 2024, both in engineering and computer resources.”

Given Meta’s size and market reach, other Big Tech giants will also have to step up to avoid being left behind. For semiconductor stock investors, this fortifies confidence in their picks. Here are three semiconductor stocks that can ride the rebound but are not as widely known as Nvidia.

Broadcom, Inc. (NASDAQ: AVGO)

Since early January coverage, this US-based semiconductor manufacturer gained a 12% value boost, going from $1051 to $1179 per share. Over the last three months, AVGO stock is up 34%. In November ‘23, the company completed its massive $61 billion acquisition of VMware, a software-as-a-service (SaaS) cloud computing company.

The Broadcom investing thesis remains the same. As its name implies, the company is more broadly diversified across networking, storage, data centers, wireless, broadband, and industrial. This translates to products ranging from home connectivity and smartphones to factory automation and renewable energy systems.

Broadcom’s next earnings report is scheduled for March 7th. In the last statement for Q3 2023, the company reported 5% revenue growth of $8.8 billion with a diluted (GAAP) earnings per share of $7.74. Broadcom is also a popular dividend stock, giving a 1.84% yield at an annual payout of $21 per share. 

Broadcom has a consistent stock buyback program, having repurchased $2.16 billion worth of shares in Q3. Based on 25 analyst inputs pulled by Nasdaq, AVGO stock is a “strong buy.” The average AVGO price target is $1,165 vs the current $1,228.79. The high estimate is $1,325, while the low forecast is $1,000 per share.

Micron Technology, Inc. (NASDAQ: MU)

Over 10x cheaper than AVGO, MU shares gained 27% value over the last three months. Although computing power is critical for the global digital industry, it can’t be realized without memory chips and connectivity. 

Micron caters to all four segments: compute and networking (CNBU), Mobile (MBU), embedded (EBU), and storage (SBU). Per the last Q1 2024 earnings, Micron achieved 97% year-over-year growth in MBU to $1.29 billion. The company’s revenue increased by 16% from a year-ago quarter to $4.7 billion.

Micron’s DRAM modules were particularly successful, generating 73% of the total revenue and increasing sales year-over-year by 24%. Similar to Broadcom, Micron has a substantial stock buyback program. From FY21 to Q124, the company returned $5.2 billion to shareholders via dividend payouts and repurchases.

Although delivering a $1 billion net loss for the quarter, this was the cost of development (HBM3E memory), expansion to India, and continued $15 billion fab investment in Boise, Idaho. Moving forward into Q2, the 45-year-old company expects $5.3 billion in revenue (+/- $200 million). 

Based on 28 analyst inputs pulled by Nasdaq, MU stock is a “strong buy.” The average MU price target is $96.03 vs the current $89.16. The high estimate is $115, while the low forecast is $74.75 per share. 

Qorvo, Inc. (NASDAQ: QRVO)

Even older than Micron, the 67-year-old Qorvo supplies emerging connectivity sectors. From High-Performance Analog (HPA) and Connectivity and Sensors Group (CSG) to Advanced Cellular Group (ACG), these Qorvo divisions are critical for the Internet of Things (IoT), a constant theme at World Economic Forum sessions. 

In October ‘23, Citigroup downgraded QRVO from neutral to sell. Over the last three months, QRVO is up 12.6% with a low shorted float of 2.68%. In December, the company partnered strategically with Chinese electronics manufacturer Luxshare Precision Industry Co.

After acquiring iPhone assembly plants from Wistron, Luxshare became an iPhone assembler in 2020. If the first half approves the long-term supply agreement of 2024, the partnership will give Luxshare access to Qorvo’s assembly fabs in Beijing and Dezhou. 

For Q2 FY2024, delivered in November 2023, Qorvo reported guidance-exceeded revenue growth by $103 million, at $1.1 billion. Year-over-year, the company’s gross profit decreased by 2.1% while increasing quarterly by 44.4%, reminding investors that it is a cyclical company.

Qorvo has $2.9 billion in total liabilities and $64.4 million in free cash flow. Although this debt-to-equity ratio of 0.54 seems high, it is lower than Broadcom’s 1.57.

Based on 24 analyst inputs pulled by Nasdaq, QRVO stock is a “buy.” The average QRVO price target is $109.5 vs the current $106.43. The high estimate is $134, while the low forecast is $95 per share.

Do you think AI demand will be even greater than currently priced-in? Let us know in the comments below.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.