Although the global semiconductor industry recorded its highest-ever sales last year, the industry faced a cyclical downtrend during the second half of the year. The industry struggled amid macroeconomic headwinds, supply chain disruptions, and a lack of demand in the end markets.
Despite the short-term challenges facing the industry, the long-term prospects look promising. To that end, it could be wise to buy fundamentally strong semiconductor stocks ASML Holding N.V. (ASML), Cohu, Inc. (COHU), and ChipMOS TECHNOLOGIES INC. (IMOS).
Before diving deeper into the fundamentals of these stocks, let’s discuss the prospects of the semiconductor industry.
Semiconductors are in huge demand due to the need for advanced technology and the rising demand for electronics. Semiconductors are witnessing strong demand from various sectors such as healthcare, automotive, consumer electronics, artificial intelligence, and others.
Although continuing supply constraints and chip shortages present a significant challenge to the sector, an artificial intelligence-based solution has emerged. Thanks to advancements in AI, supply chains can be fortified by streamlining the supplier identification process.
The domestic semiconductor market is well-positioned for growth, boosted by government initiatives. As part of the CHIPS and Science Act, the Department of Commerce oversees $50 billion to revitalize the U.S. semiconductor industry, including $39 billion in semiconductor incentives.
The semiconductor market is projected to grow at a CAGR of 12.2% to $1.38 trillion by 2029. Additionally, investors’ interest in semiconductor stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 27% returns over the past six months
Let’s take a closer look at their fundamentals.
ASML Holding N.V. (ASML)
Headquartered in Veldhoven, the Netherlands, ASML develops, produces, markets, sells, and services advanced semiconductor equipment systems consisting of lithography, metrology, and inspection systems for memory and logic chipmakers.
In terms of the trailing-12-month EBIT margin, ASML’s 32.48% is 597% higher than the 4.66% industry average. Its 28.23% trailing-12-month net income margin is significantly higher than the 2.55% industry average. Likewise, its 19.59% trailing-12-month Return on Total Assets is considerably higher than the industry average of 0.49%.
ASML’s total net sales for the first quarter ended April 2, 2023, increased 90.9% year-over-year to €6.75 billion ($7.40 billion). Its gross profit increased 97.2% over the prior-year quarter to €3.41 billion ($3.75 billion). Its net income rose 181.3% year-over-year to €1.96 billion ($2.15 billion). Moreover, its EPS came in at €4.95, representing an increase of 186.1% year-over-year.
ASML’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 40.4% and 32.8% year-over-year to $5.06 and $7.34 billion, respectively. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 31.4% to close the last trading session at $643.05.
ASML’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #14 out of 91 stocks in the B-rated Semiconductor & Wireless Chip industry. In addition, it has an A grade for Quality and a B for Momentum, Stability, and Sentiment. We have also given ASML grades for Growth and Value. Get all the ASML ratings here.
Cohu, Inc. (COHU)
COHU provides semiconductor test equipment and services in China, the United States, Taiwan, Malaysia, the Philippines, and internationally. The company supplies semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, thermal sub-systems, and semiconductor automated test equipment for semiconductor manufacturers and test subcontractors.
On January 30, 2023, COHU announced that it acquired MCT Worldwide, LLC, a leading semiconductor test handler automation equipment provider.
COHU’s President and CEO, Luis Müller, believes that the acquisition provides an opportunity to expand the company’s addressable market with film-frame test and laser marking equipment. COHU expects to develop new test automation solutions for advanced packages in panel tests by drawing upon the combined technologies and expertise.
In terms of the trailing-12-month EBIT margin, COHU’s 14.93% is 220.4% higher than the 4.66% industry average. Its 11.45% trailing-12-month net income margin is 349.5% higher than the 2.55% industry average. Likewise, its 9.96% trailing-12-month Return on Common Equity is 798.5% higher than the industry average of 1.11%.
COHU’s total assets for the first quarter ended April 1, 2023, came in at $1.19 billion, compared to $1.23 billion for the fiscal year ended December 31, 2022. The company’s long-term debt declined 48.1% to $37.72 million, compared to $72.66 million for the fiscal year that ended December 31, 2022. Its non-GAAP net EPS and net income came in at $0.56 and $26.90 million, respectively.
COHU’s EPS and revenue for fiscal 2024 are expected to increase 28.4% and 10.2% year-over-year to $2.58 and $766.49 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 23.6% to close the last trading session at $33.32.
COHU’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #21 in the same industry. It has a B grade for Value and Momentum. We have also given COHU grades for Growth, Stability, Sentiment, and Quality. Get all COHU ratings here.
ChipMOS TECHNOLOGIES INC. (IMOS)
Headquartered in Hsinchu, Taiwan, IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits and related assembly and testing services worldwide. It operates through Testing; Assembly; Testing, and Assembly for LCD, OLED, and Other Display Panel Driver Semiconductors; Bumping; and Others segments.
In terms of the trailing-12-month EBITDA margin, IMOS’ 31% is 233.2% higher than the 9.30% industry average. Its 17.97% trailing-12-month CAPEX/Sales is 675% higher than the 2.32% industry average. Likewise, its 11.30% trailing-12-month net income margin is 343.5% higher than the industry average of 2.55%.
IMOS’ revenue for the first quarter ended March 31, 2023, came in at NT$4.60 billion ($149.74 million). Its total assets increased 8.8% year-over-year to NT$45.71 billion ($1.49 billion). Its current assets increased 22% year-over-year to NT$19.60 billion ($638.01 million). Moreover, its profit for the period came in at NT$202.35 million ($6.59 million). Also, its EPS came in at NT$0.28.
IMOS’ revenue for the quarter ending September 30, 2023, is expected to increase 19.1% year-over-year to $197.06 million. Over the past six months, the stock has gained 23.4% to close the last trading session at $24.76.
IMOS’ POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to a Buy. It is ranked #13 in the Semiconductor & Wireless Chip industry.
It has an A grade for Sentiment and a B for Value and Momentum. Click here to see the other ratings of IMOS for Growth, Stability, and Quality.
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ASML shares were trading at $657.85 per share on Wednesday morning, up $14.80 (+2.30%). Year-to-date, ASML has gained 20.92%, versus a 8.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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