The semiconductor industry is growing significantly owing to the extensive chip application across various end-use industries like consumer electronics, automotive, data processing, and government projects. Technological innovations such as artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT) are critical drivers of chip demand.

The Semiconductor Industry Association (SIA) announced worldwide semiconductors sales of $137.7 billion during the first quarter of 2024, up 15.2% year-over-year. John Neuffer, SIA president and CEO said, “The market is expected to continue to grow during the remainder of the year, with double-digit annual growth projected for 2024.”

Moreover, surging demand for semiconductors in data centers, high-performance computing (HPC), and the automotive industry creates growth opportunities for the industry players. Increasing enterprise interest in generative AI fueling demand for AI chips, rising need for GPUs from data centers, and surge in chip content per vehicle are some trends driving the market growth.

According to a Fortune Business Insights report, the global semiconductor market is expected to expand at a CAGR of 14.9% during the forecast period (2024-2032), resulting in a market volume of $2.06 trillion by 2032, driven by rising electronic use and integration across various applications.

Against this backdrop, let’s compare two Semiconductor & Wireless Chip stocks, Taiwan Semiconductor Manufacturing Company Limited (TSM) and Broadcom Inc. (AVGO) to understand which stock will rally in the upcoming months.

The Case for Broadcom Inc. Stock

Broadcom Inc. (AVGO) designs, develops, and supplies various semiconductor devices and focuses on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products. It operates through Semiconductor Solutions and Infrastructure Software segments. Its market cap currently stands at $655.29 billion.

AVGO’s stock gained 42.6% over the past six months and 106.3% over the past year to close the last trading session at $1,399.20.

On May 20, AVGO launched its latest portfolio of highly-scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters to revolutionize the data center ecosystem, which offers an enhanced, open, standards-based Ethernet NIC and switching solution to resolve connectivity bottlenecks.

The new cutting-edge PCIe technology empowers seamless integration of open standards and fabric interconnects for AI clusters, leading to a revolutionized AI networking landscape.

On May 17, AVGO announced its Accelerate Program to provide enhanced service levels for more Broadcom software solutions delivered to a broader range of Broadcom customers across multiple geographies. Under the program, partners will act as an extension of the AVGO team and offer customers in-country expertise, technical support, and value-added services.

On May 8, AVGO unveiled the Automic® Automation solution to deliver industry-leading workload automation and orchestration, which is available as Software as a Service (SaaS). Automic SaaS unifies and simplifies automation across mainframe, distributed, and hybrid cloud environments and frees valuable resources to focus on more strategic automation projects.

In terms of forward non-GAAP PEG, AVGO is trading at 1.93x, 4.2% lower than the industry average of 2.02x. However, the stock’s forward EV/EBIT of 24.44x is 15.5% higher than the industry average of 21.15x. Also, its forward Price/Book of 8.57x is 116.2% higher than the 3.96x industry average.

AVGO’s trailing-12-month EBIT margin and net income margin of 39.51% and 29.93% are significantly higher than the industry average of 4.57% and 2.59%, respectively. However, its trailing-12-month asset turnover ratio of 0.31x is 49.8% lower than the industry average of 0.62x.

During the first quarter that ended February 4, 2024, AGVO’s revenue rose 34.2% year-over-year to $11.96 billion. The company’s operating income declined 49.2% from the year-ago value to $2.08 billion. Its non-GAAP net income and non-GAAP EPS came in at $5.25 billion and $10.99, up 17.2% and 6.4% from the prior year’s quarter, respectively.

However, as of February 4, 2024, the company’s total cash and cash equivalents came at $11.86 billion, compared to $14.19 billion as of October 29, 2023.

Street expects AVGO’s revenue and EPS for the second quarter (ended April 2024) to increase 37.4% and 5% year-over-year to $12 billion and $10.83, respectively. Moreover, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.

AVGO’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a C grade for Momentum and Stability. In the Semiconductor & Wireless Chip industry, AVGO is ranked #50 among 92 stocks.

To check additional POWR Ratings for Value, Growth, Sentiment, and Quality of AVGO, click here.

The Case for Taiwan Semiconductor Manufacturing Company Limited Stock

Taiwan Semiconductor Manufacturing Company Limited (TSM) is based in Hsinchu City, Taiwan. It manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. It provides a range of wafer fabrication processes and offers customer and engineering support services. Its market cap currently stands at $671.20 billion.

TSM’s stock has surged 56.2% over the past six months and 67.5% over the past year to close the last trading session at $153.67.

On April 24, TSM introduced its newest semiconductor process, advanced packaging, and 3D IC technologies for powering the next generation of AI innovations with silicon leadership. It introduced the TSMC A16TM technology, consisting of leading nano-sheet transistors with innovative backside power rail solution.

TSM also introduced its System-on-Wafer (TSMC-SoW™) technology, an innovative solution to bring revolutionary performance to the wafer level. With the most comprehensive set of technologies, TSM aims to realize the visions for AI and integrate the digital world with the real world.

In terms of forward non-GAAP P/E, TSM is trading at 24.34x, marginally lower than the industry average of 24.52x. Likewise, its forward EV/EBITDA multiple of 11.26 is 25.8% lower than the 15.19 industry average. Also, the stock’s forward Price/Cash Flow of 14.48x is 39% lower than the industry average of 23.74x.

TSM’s trailing-12-month EBITDA margin and net income margin of 67.29% and 38.16% are 587.2% and 1371.6% higher than the respective industry averages of 9.79% and 2.59%. Similarly, the stock’s trailing-12-month levered FCF margin of 15.63% is 60.3% higher than the industry average of 9.75%.

During the first quarter that ended March 31, 2024, TSM’s net revenue increased 16.5% year-over-year to $18.87 billion. Its gross profit grew 9.8% from the year-ago value to $10.01 billion. The company’s income from operations rose 7.7% from the prior year’s quarter to $7.93 billion.

In addition, the company’s net income and EPS of $7.17 billion and $0.28 indicate growth of 8.8% and 8.9% year-over-year, respectively.

Analysts expect TSM’s revenue for the second quarter (ending June 2024) to increase 30% year-over-year to $20.07 billion, and its EPS for the ongoing quarter is expected to grow 19.8% year-over-year to $1.37. Also, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.

TSM’s bright fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

The stock has an A grade for Quality and Momentum. TSM is ranked #12 in the Semiconductor & Wireless Chip industry.

In addition to the POWR Ratings I’ve just highlighted, you can see TSM’s ratings for Sentiment, Growth, Value, and Stability here.

TSM vs. AVGO: Which Semiconductor Stock Will Surge in the Coming Months?

The semiconductor industry is poised for continued growth and expansion with its wide application in networking communication devices, data, industrial automation, and more. Furthermore, recent technological developments such as AI, IoT, ML, and 5G open new opportunities for the industry players.

Both AVGO and TSM stand to capitalize on these impressive semiconductor industry trends. However, TSM’s solid financial performance, accelerating profitability, and bright near-term outlook make it a better stock pick.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

What To Do Next?

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TSM shares rose $2.94 (+1.91%) in premarket trading Wednesday. Year-to-date, TSM has gained 50.90%, versus a 11.96% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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