Due to the expanding presence of semiconductors in a wide array of devices, including smartphones, computers, automotive systems, and medical equipment, chips have become indispensable in numerous applications. This trend signals a consistent and enduring demand for semiconductors in the foreseeable future.

Against the backdrop, in this article, we explore the fundamentals of three stocks, Intel Corporation (INTC), STMicroelectronics N.V. (STM), and United Microelectronics Corporation (UMC), that are currently showing remarkable momentum and could be valuable additions to your watchlist.

The semiconductor industry is all set to grow at a rapid pace in the coming decades with its applications in the fields of Automotive, Wireless Communications, the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI), and more.

The semiconductor market is expected to hit a revenue of $599.80 billion by this year. Over the period from 2023 to 2027, it is projected to exhibit a CAGR of 8.1%, resulting in a market volume of $818.60 billion by 2027.

Despite a short-term cyclicality, the demand for chips continued to be robust. This shows the increased dependency on chips in the modern world, with its demand and revenue increasing over the next decade. The growth of the semiconductor industry has been consistent, with its annual sales growing from $139 billion in 2001 to $573.5 billion in 2022, registering an increase of a whopping 313%.

Furthermore, governments around the world are recognizing the strategic importance of semiconductors and are investing heavily in this industry to reduce dependency on foreign chips and build up domestic manufacturing in order to meet the sustained demand for the nation.

For instance, the Biden-Harris Administration plans to strengthen the semiconductor supply chain through CHIPS for America investments. Funding opportunity for large semiconductor supply chain projects was announced, with investments exceeding $300 million and a separate process for smaller projects aimed at enhancing the industry's resilience and growth.

Overall, the future of the semiconductor industry looks optimistic, with buoyant demand, favorable government initiatives, and great innovation in the coming years. With that being said, let us evaluate the fundamentals of the featured stocks to determine what makes them worth keeping an eye on.

Intel Corporation (INTC)

INTC is a renowned company that designs, develops, manufactures, markets, and sells computing and related products worldwide. It operates through Client Computing Group; Data Center and AI; Network and Edge; Mobileye; Accelerated Computing Systems and Graphics; Intel Foundry Services; and other segments.

On July 18, INTC revealed its term sheet agreement with ASUS, a renowned global technology solution provider. The agreement encompasses the manufacturing, sales, and support of the Intel® Next Unit of Compute (NUC) 10th to 13th generations systems product line.

By leveraging ASUS’ impressive expertise and track record in delivering industry-leading mini-PCs to customers, INTC aims to further advance the innovation and growth of its NUC systems product line.

On June 21, INTC, in partnership with Blockade Labs, unveiled LDM3D (Latent Diffusion Model for 3D), an innovative diffusion model powered by generative AI. This groundbreaking model allows the creation of realistic 3D visual content by generating depth maps, resulting in vivid and immersive 360-degree views.

As the first of its kind in the industry, LDM3D has the potential to revolutionize content creation, metaverse applications, and digital experiences. Its impact spans various industries, including entertainment, gaming, architecture, and design, offering transformative capabilities for these sectors.

INTC’s net revenue for the fiscal first quarter (ended April 1, 2023) amounted to $11.72 billion, while its gross margin came in at $4.01 billion.

During the same period, the company’s total current liabilities stood at $27.39 billion, declining 14.8% compared to $32.16 billion as of December 31, 2022. In addition, its cash and cash equivalents amounted to $8.23 billion.

Analysts expect INTC’s revenue and EPS for the third quarter (ending September 30, 2023) to be $12.13 billion and $0.17, respectively. Moreover, its EPS is projected to improve by 6.7% per annum over the next five years.

The stock has gained 27.2% year-to-date to close the last trading session at $33.63. Also, it is trading higher than its 50-day moving average of $32.13 and 200-day moving average of $29.50, indicating an uptrend.

INTC’s POWR Ratings reflect this promising outlook. It has a B grade for Momentum. In the 92-stock Semiconductor & Wireless Chip industry, it is ranked #75. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Click here to see INTC’s ratings for Growth, Value, Stability, Sentiment, and Quality.  

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; Analog, MEMS, and Sensors Group; and Microcontrollers and Digital ICs Group.

On June 20, STM and Airbus, a renowned global pioneer in the aerospace industry, entered into a collaboration agreement. This partnership aims to jointly conduct research and development in the field of power electronics.

The focus will be on developing more efficient and lighter power electronics, which are crucial for advancing future hybrid-powered aircraft and fully electric urban air vehicles.

In the same month, STM and GlobalFoundries Inc. (GFS) announced their agreement to establish a new, high-volume semiconductor manufacturing facility in Crolles, France, which the two companies will jointly operate.

According to Jean-Marc Chery, President, and CEO at STM, this facility will enable the company to cater to the growing demands of its European and global customers in various vital sectors like automotive, industrial, IoT, and communication infrastructure, as they embrace digitalization and decarbonization. The initiative aligns with their ambitious revenue target of over $20 billion.

For the fiscal first quarter that ended April 1, 2023, STM’s net revenues increased 19.7% year-over-year to $4.23 billion, while its operating income came in at $1.20 billion, up 36.9% year-over-year.

The company’s net income and EPS increased 40.2% and 39.2% from the prior-year quarter to $1.05 billion and $1.10, respectively. Also, its gross profit rose 27.5% from the year-ago value to $2.11 billion.

Street expects STM’s revenue and EPS for the second quarter (ended June 30, 2023) to increase 11.8% and 16.5% year-over-year to $4.29 billion and $1.07, respectively. Moreover, the company topped the EPS and revenue estimates in each of the trailing four quarters, which is excellent.

Over the past nine months, the stock has gained 50% to close the last trading session at $50.46, higher than its 50-day moving average of $47.37 and 200-day moving average of $43.42.

STM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Momentum, Sentiment, and Quality. Within the same industry, it is ranked #4. Click here to see STM’s rating for Growth and Stability.

United Microelectronics Corporation (UMC)

Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services.

On May 10, DENSO Corporation (DNZOY) and United Semiconductor Japan Co., Ltd. (USJC), a subsidiary of UMC, jointly announced a collaboration to manufacture Insulated Gate Bipolar Transistors (IGBT).

These IGBTs offer a notable 20% reduction in power losses compared to previous-generation devices, and the production capacity is expected to reach 10,000 wafers per month by 2025. This achievement comes just one year after the two companies established a strategic partnership to develop this crucial power semiconductor component for electric vehicles.

In the same month, UMC revealed that its 40nm RFSOI technology platform is ready for the production of millimeter-wave (mmWave) Radio Frequency (RF) front-end products.

This development is expected to contribute to the widespread adoption of 5G wireless networks and applications, including smartphones, Fixed Wireless Access (FWA) systems, and small cell-base stations.

Unlike the majority of current 5G networks that operate in the sub-8GHz bands, mmWave technology utilizes a new frequency spectrum ranging from 24GHz to 60GHz. This enables the delivery of exceptionally fast transfer speeds, significantly reduced latency, and more reliable connectivity for various applications.

In the first quarter, which ended March 31, 2023, UMC’s operating revenue amounted to N$54.20 billion ($1.73 billion), while its gross profit came in at N$19.22 billion ($612.90 million). The company’s attributable net income and EPS amounted to $16.18 billion ($515.95 million) and N$1.31 for the same period, respectively.

The consensus revenue estimate for the second quarter (ended June 30, 2023) is expected to be $1.75 billion. The consensus EPS estimate for the same quarter is expected to be $0.16. Additionally, the company surpassed the revenue estimates in three of the trailing four quarters, which is promising.

UMC’s shares have gained 17.7% over the past nine months to close the last trading session at $7.25.

It’s no surprise that UMC has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Momentum and a B for Value and Quality. Out of 92 stocks in the same industry, it is ranked #5.

In addition to the POWR Ratings we’ve stated above, we also have UMC’s ratings for Growth, Stability, and Sentiment. Get all UMC ratings here.

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INTC shares were trading at $33.74 per share on Tuesday afternoon, up $0.11 (+0.33%). Year-to-date, INTC has gained 29.74%, versus a 19.99% rise in the benchmark S&P 500 index during the same period.

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