The growing demand for technology in everyday life, including smartphones and IoT devices, and the expansion of 5G networks are expected to drive growth in the semiconductor industry. The rise of AI and machine learning, along with advancements in electric and autonomous vehicles, further drives the need for advanced semiconductors.
Amid such conducive trends, Wall Street analysts expect fundamentally sound semiconductor stocks, Lattice Semiconductor Corporation (LSCC), Rambus Inc. (RMBS), and Semtech Corporation (SMTC), to surge over 30%.
The semiconductor market serves as a crucial link between semiconductor manufacturers, electronic device manufacturers, and end-users. It caters to a wide range of industries, such as consumer electronics, automotive, telecommunications, industrial machinery, and healthcare.
According to recent data released by the Semiconductor Industry Association (SIA), global semiconductor industry sales increased 15.8% year-over-year to $46.4 billion in April 2024.
Additionally, AI algorithms and machine learning (ML) techniques are being widely integrated into various devices, including smartphones, smart home devices, wearables, and industrial sensors. As a result, these factors are anticipated to propel wireless chipset market growth. The wireless chipset market is estimated to grow at a CAGR of 4.4% by 2027.
Considering these factors, let’s take a look at the fundamentals of the top three Semiconductor & Wireless Chip stock picks, beginning with the third choice.
Stock #3: Lattice Semiconductor Corporation (LSCC)
LSCC develops and sells semiconductor products in Asia, Europe, and the Americas. The company offers field programmable gate arrays that consist of four product families, including the Lattice Certus and ECP, Mach, iCE, and CrossLink.
On June 26, 2024, LSCC expanded its leadership in security-focused hardware and software with the launch of two new solutions to address customer challenges around increasing threats to system security.
The company announced the Lattice MachXO5D™-NX family of advanced secure control FPGAs, offering crypto-agile algorithms, hardware root of trust features with integrated flash, and fail-safe remote field updates for reliable and secure product lifecycle management.
In terms of the trailing-12-month gross profit margin, LSCC’s 69.53% is 41.7% higher than the 49.07% industry average. Its 26.23% trailing-12-month levered FCF margin is 163.2% higher than the 9.97% industry average. Likewise, the stock’s 0.88x trailing-12-month asset turnover ratio is 40.8% higher than the 0.62x industry average.
LSCC’s revenue for the first quarter ended March 31, 2024, stood at $140.82 million. The company’s non-GAAP gross margin was reported at $97.10 million. Also, the company’s non-GAAP net income came in at $40.26 million. Non-GAAP net income per share was reported at $0.29.
Street expects LSCC to post a $130.17 million revenue for the second quarter (ended June 2024). The company’s EPS is expected to be $0.24 for the same quarter. Moreover, it surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of LSCC have plunged 16.4% over the past six months to close the last trading session at $57.71.
Based on nine Wall Street analysts offering 12-month price targets for LSCC in the last three months, the average target price is $80, indicating a 38.6% change from the last price, with a high forecast of $88 and a low forecast of $57.71.
LSCC’s POWR Ratings reflect its outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
LSCC has a B grade for Quality. It is ranked #70 among 92 stocks in the Semiconductor & Wireless Chip industry.
Click here to access the additional LSCC ratings (Momentum, Stability, Growth, Sentiment, and Value).
Stock #2: Rambus Inc. (RMBS)
RMBS offers DDR memory interface chips, including DDR5 and DDR4 memory interface chips, to module manufacturers, OEMs, and hyperscalers; silicon IP, such as interface and security IP solutions that move and protect data in advanced data centers, government, and automotive applications; and interfaces IP solutions for high-speed memory and chip-to-chip digital controller IP.
In terms of the trailing-12-month gross profit margin, RMBS’ 82.29% is 67.7% higher than the 49.07% industry average. Its 30.25% trailing-12-month levered FCF margin is 203.5% higher than the 9.97% industry average. Likewise, the stock’s 24.39% trailing-12-month EBIT margin is 403.9% higher than the 4.84% industry average.
During the first quarter, which ended March 31, 2024, RMBS’ total revenue increased by 3.6% year-over-year to $117.90 million. Its operating income grew significantly year-over-year to $30.10 million. Moreover, its net income was reported at $32.90 million and $0.30 per share, up 897% and 900% year-over-year, respectively.
Street expects RMBS’ EPS for the second quarter ended June 30, 2024, to increase 6% year-over-year to $0.45. The company’s revenue is expected to be $139 million for the same quarter. The company surpassed consensus EPS and revenue estimates in three of the trailing four quarters.
RMBS’ stock gained 5% over the past month to close the last trading session at $58.
Based on three Wall Street analysts offering 12-month price targets for RMBS in the last three months, the average target price is $78.33, indicating a 35.1% change from the last price, with a high forecast of $85 and a low forecast of $75.
RMBS’ fundamentals are reflected in its POWR Ratings. It has an overall rating of C, which equates to Neutral in our proprietary rating system.
The stock has a B grade for Quality. RMBS is ranked #47 in the same industry.
Beyond what is stated above, we’ve also rated RMBS for Sentiment, Growth, Stability, Value, and Momentum. Get all RMBS ratings here.
Stock #1: Semtech Corporation (SMTC)
SMTC designs, develops, manufactures, and markets analog and mixed-signal semiconductors and advanced algorithms.
On May 2, 2024, SMTC and Console Connect, a leading Network-as-a-Service (NaaS) platform, jointly announced their collaboration, which would expand SMTC’s connectivity coverage across the Asia-Pacific (APAC) region for its AirVantage Smart Connectivity service.
SMTC leveraged Console Connect’s IMSI service and extensive partner roaming network to extend the reach of its AirVantage Smart Connectivity service to more markets and locations across the APAC region.
In terms of the trailing-12-month levered FCF margin, SMTC’s 10.47% is 5.1% higher than the 9.97% industry average.
SMTC’s non-GAAP net sales for the fiscal first quarter that ended April 28, 2024, were reported at $206.10 million. Its non-GAAP operating income rose 14.5% year-over-year to $25.20 million. Moreover, its non-GAAP net income stood at $4.10 million, up 46.4% over the prior-year quarter. Also, its non-GAAP earnings per share grew 50% year-over-year to $0.06.
Analysts expect SMTC’s revenue for the third quarter ending October 2024 to increase 13.4% year-over-year to $227.85 million. Its EPS is expected to increase 885% year-over-year to $0.20 for the same quarter. The company surpassed Street revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 43.8% over the past six months, closing the last trading session at $31.50.
Based on 11 Wall Street analysts offering 12-month price targets for SMTC in the last three months, the average target price is $50, indicating a 58.7% change from the last price, with a high forecast of $60 and a low forecast of $45.
SMTC’s POWR Ratings show some prospects. The stock has an overall rating of C, which equates to a Neutral in our proprietary rating system.
SMTC has a B grade for Growth. It is ranked #40 in the same industry.
In addition to the POWR Ratings highlighted above, one can access SMTC’s ratings for Value, Quality, Momentum, Stability, and Sentiment here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
LSCC shares were trading at $59.69 per share on Tuesday afternoon, up $1.98 (+3.43%). Year-to-date, LSCC has declined -13.48%, versus a 16.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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