Despite persistent challenges and weakening demand, the global semiconductor industry’s outlook remains positive. Moreover, in 2022, global semiconductor sector sales were $573.50 billion, a 3.2% increase over 2021.

John Neuffer, Semiconductor Industry Association president and CEO, said, “Despite short-term fluctuations in sales due to market cyclicality and macroeconomic conditions, the long-term outlook for the semiconductor market remains incredibly strong due to the ever-increasing role of chips in making the world smarter, more efficient, and better connected.”

According to Vantage Market Research, the global semiconductor market is estimated to grow at a CAGR of 8.8% until 2028. In addition, the CHIPS Act is inducing significant investments in the U.S. that will boost production, job creation, and the supply chain.

Investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF (XSD) 9.8% returns over the past three months and 15.6% year-to-date.

Therefore, investors could now consider buying quality semiconductor stocks, Taiwan Semiconductor Manufacturing Company Limited (TSM) and Broadcom Inc. (AVGO), in 2023.

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices worldwide. It provides complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radio frequency, and embedded memory semiconductors.

TSM’s forward EV/EBITDA of 8.09x is 38% lower than the industry average of 13.03x. Its forward non-GAAP P/E multiple of 15.83 is 23.8% lower than the industry average of 20.78.

TSM’s trailing-12-month EBIT margin of 49.53% is 717% higher than the 6.06% industry average, while its trailing-12-month gross profit margin of 59.56% is 21.1% higher than the industry average of 49.18%.

During the fourth quarter that ended December 31, 2022, TSM’s net revenues came in at $19.93 billion, up 42.8% year-over-year. Moreover, its gross profit came in at $12.40 billion, up 68.7% year-over-year. Also, its net income increased 77.8% year-over-year to $9.43 billion, while its EPS grew 78% year-over-year to $1.82.

TSM’s revenue is expected to increase 21.3% year-over-year to $92.49 billion in 2024. Its EPS is expected to grow 26.4% year-over-year to $7.03 in 2024. It surpassed EPS estimates in all four trailing quarters. Over the past three months, the stock has gained 9.7% to close the last trading session at $87.64.

It’s no surprise that TSM has an overall B rating, equating to Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Quality and a B for Sentiment and Momentum. TSM is ranked #19 out of 92 stocks in the B-rated Semiconductor & Wireless Chip industry.

Click here for the additional POWR Ratings for Stability, Growth, and Value for TSM.

Broadcom Inc. (AVGO)

AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products worldwide. The company operates in two segments: Semiconductor Solutions and Infrastructure Software.

AVGO’s forward non-GAAP P/E of 14.61 is 29.7% lower than the industry average of 20.78x. Its forward EV/EBITDA multiple of 12.41 is 4.8% lower than the industry average of 13.03.

AVGO’s trailing-12-month EBIT margin of 43.03% is 609.8% higher than the 6.06% industry average, while its trailing-12-month EBITDA margin of 58.04% is 414.3% higher than the industry average of 11.28%.

AVGO’s non-GAAP net revenue increased 20.6% year-over-year to $8.93 billion for the fourth quarter of the fiscal year 2022, which ended October 30, 2022. Its adjusted EBITDA came in at $5.72 billion, up 25.8% year-over-year. Moreover, non-GAAP net income increased 29.8% year-over-year to $4.54 billion, while its non-GAAP EPS came in at $10.45, up 33.8% year-over-year.

Street expects its revenue to increase by 6% year-over-year to $35.21 billion in 2023, while its EPS is expected to grow 8% year-over-year to $40.66. It surpassed EPS estimates in all four trailing quarters. The stock has gained 12.4% over the past three months to close the last trading session at $581.54.

AVGO has an overall B rating, which equates to a Buy in our POWR Ratings system. It has an A grade for Quality. AVGO is ranked #8 in the same industry. To see the additional POWR Ratings for AVGO (Value, Momentum, Stability, Sentiment, and Growth), click here.

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TSM shares . Year-to-date, TSM has gained 17.65%, versus a 4.36% rise in the benchmark S&P 500 index during the same period.

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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