The production of several industries has been hit hard by the global semiconductor chip shortage over the past 18 months. And although the global chip shortage is not expected to subside until the end of 2022, the situation could begin improving in the near term, thanks to the initiatives to ramp up production. The Biden administration has urged Congress to pass a $52 billion spending bill before Christmas to address the crisis.
Rising demand from several industries, such as consumer electronics and electric vehicles (EVs), is driving the industry’s growth. The global semiconductor chips market is expected to reach $553.6 billion by 2026, registering a 7.8% CAGR. And according to the U.S. Commerce chief, “As you know, we’ve been working on the semiconductor shortage since day one of the president’s administration, and it’s time to get more aggressive.” Furthermore, advancements in chip making processes should help the industry grow. Investor optimism in this space is evidenced by the SPDR S&P Semiconductor ETF (XSD) 23% returns over the past three months.
Given this backdrop, we think it could be wise to bet on quality large-cap chip stocks Intel Corporation (INTC), Micron Technology, Inc. (MU), and United Microelectronics Corporation (UMC). They are expected to deliver substantial returns in the long run based on their market dominance and diverse portfolios. Also, these stocks are rated A (Strong Buy) in our proprietary rating system.
Click here to checkout our Semiconductor Industry Report for 2021
Intel Corporation (INTC)
With a market capitalization of $210.47 billion, INTC in Santa Clara, Calif., is a global manufacturer and designer of technologies for the cloud, smart, and connected devices for retail, industrial, and consumer uses. The company operates through DCG; IOTG; Mobileye; NSG; PSG; CCG, and All Other segments. Accelerators, Connectivity, Memory and Storage, Platform products, and Boards and Systems are among INTC's products.
INTC’s labs launched the Intel Research Center for Integrated Photonics for Data Center Interconnects this month. The research center should collaborate with top scientific minds across the U.S. to accelerate the advancement of integrated photonics for the next generation of computer interconnects.
During the third quarter, ended September 25, 2021, INTC's net revenue increased 4.6% year-over-year to $18.1 billion. The company's gross margin grew 10.3% from its year-ago value to $10.75 billion. Its operating income rose 3.3% from the prior-year quarter to $5.23 billion. Also, the company's net income increased 55.6% year-over-year to $7 billion.
INTC has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is expected to increase 3.2% per annum in the next five years. Moreover, the stock has gained 2.1% over the past year and 3.9% year-to-date.
INTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Value and Momentum and a B grade for Quality. We have also graded INTC for Sentiment, Stability, and Growth. Click here to access all INTC’s ratings. INTC is ranked #10 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.
Micron Technology, Inc. (MU)
MU provides micron memory and storage solutions that accelerate the transformation of information into intelligence. The Boise, Idaho-based company also delivers a broad portfolio of technologies that includes artificial intelligence and autonomous vehicles. It operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit. The company has a market capitalization of $96.36 billion.
This month, MU announced plans for its new memory design center in Midtown Atlanta. Through this new site, the company will be able to increase its access to Atlanta’s rich pool of technical talent, build strong partnerships with many institutions in the region, and expand its reach into the Southeast.
MU’s revenue increased 36.6% year-over-year to $8.27 billion in its fiscal fourth quarter, ended September 02, 2021. The company’s gross margin grew 87.8% from its the year-ago value to $3.96 billion. Its operating income rose 136% from the prior-year quarter to $3.07 billion. Also, the company’s net income increased 126% year-over-year to $2.78 billion.
Analysts expect MU’s revenue for its fiscal year 2022 to be $31.9 billion, representing 15.1% growth year-over-year. MU has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Also, its EPS is expected to grow 45% in the current year. Its stock price has increased 19% in price over the past three months.
MU’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Momentum and a B grade for Growth and Value.
In addition to the POWR Rating grades I have just highlighted, one can see MU’s ratings for Stability, Sentiment, and Quality here. MU is ranked #8 in the Semiconductor & Wireless Chip industry.
United Microelectronics Corporation (UMC)
With a market capitalization of $29.73 billion, UMC is a Hsinchu City, Taiwan-based semiconductor company. The company provides high-quality IC fabrication services, focusing on logic and various specialty technologies to serve major electronics industry sectors. Its comprehensive IC processing technologies and manufacturing solutions include Logic/Mixed-Signal, embedded High-Voltage, embedded Non-Volatile-Memory, RFSOI, and BCD.
This month, UMC expanded its business relationship with Micron Technology, Inc. (MU), such that UMC should provide it with opportunities to secure chip supplies for automotive. Also, together the companies should be able to address current customer t challenges.
UMC’s operating revenues increased 24.6% year-over-year to NT$55.91 billion ($2.02 billion) for the third quarter, ended September 30, 2021. The company’s gross profit grew 110.3% from its year-ago value to NT$20.54 billion ($740.58 million). Its operating income rose 112.2% from the prior-year quarter to NT$15.14 billion ($545.59 million). Also, the company’s EPS increased 90.7% year-over-year to NT$1.43 ($0.05).
For its fiscal year 2022, analysts expect UMC’s revenue to increase 42.3% year-over-year to $10.8 billion. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is estimated to increase 88.1% in the current year. The stock has gained 45.6% in price over the past nine months.
It is no surprise that UMC has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Momentum and a B grade for Quality and Stability.
Click here to see the additional POWR Ratings for UMC (Growth, Value, and Sentiment). UMC is ranked #5 in the Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
INTC shares were trading at $50.73 per share on Thursday afternoon, down $1.02 (-1.97%). Year-to-date, INTC has gained 5.08%, versus a 26.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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