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The long-term outlook for the semiconductor industry looks bright due to the widespread use of chips in various end-uses, technological advances, and favorable government initiatives. So this week, let’s take a look at two well-known semiconductor stocks, Taiwan Semiconductor Manufacturing (TSM) and Power Integration (POWI), to help you decide which one to buy. If you want to know more, read on….
In this article, Taiwan Semiconductor Circuit Manufacturing Co., Ltd. (TSM) and Power Integrations, Inc. (powi), to determine which ones are worth buying this week. Based on a basic comparison of these stocks, I believe TSM is the better buy for the reasons explained throughout this article.
apart from, short-term economic downturn The long-term outlook for the semiconductor industry looks promising due to several macroeconomic challenges. Widespread use of chips in a wide range of end-use applications such as consumer electronics, automobiles, industrial equipment, communications, and data processing is a major factor driving the growth of the semiconductor industry.
According to the Semiconductor Industry Association (SIA), global semiconductor industry sales totaled $40.7 billion in May this year. Increased by 1.7% from the previous month.
“Despite continued weakness in the market compared to 2022, global semiconductor sales increased month-over-month for the third month in a row in May, bolstering optimism about a potential market recovery in the second half of the year. It broadened my horizons,” said SIA President John Neufer. CEO.
While the popularity of new works is increasing, advanced technology Artificial Intelligence (AI), Internet of Things (IoT) and more are enabling memory chips to process large amounts of data in a short amount of time, which should provide many growth opportunities for chip industry players in the coming years. .
Moreover, the implementation of 5G networks coincides with the growing demand for faster, high performance computing devices. With the new wave of innovation brought about by advances in semiconductor technology, industries are impacting everything from data centers, smart homes and cities to efficient high-speed networks and the automotive industry.
Government support policies and investments are further accelerating the expansion of the semiconductor industry. for example, CHIPS and Science Law 2022 $52 billion included in chip manufacturing. It also provides incentives and tax credits to semiconductor manufacturers. The law will strengthen domestic chip manufacturing, design and research, and strengthen the domestic chip supply chain.
According to a Precedence Research report, the global semiconductor market is expected to reach $1.88 trillion by 2032 and is growing rapidly. CAGR 12.3%. In addition, investor interest in semiconductor stocks is fueled by the VanEck Vectors Semiconductor ETF (SMH) 37.4% return over the last 6 months.
A tailwind in the semiconductor industry should bode well for TSM and POWI.
TSM is up 62.1% over the past nine months, while POWI is up 54.5%. Also, TSM is up 39.5% year-to-date and POWI is up 35.2%. Over the past three months, TSM has risen 19.6%, while POWI has risen 22.8%.
Here’s why we think TSM can perform better in the short term:
Recent developments
On June 8, TSM announced the opening of Advanced Backend Fab 6. It is the company’s first all-in-one automated advanced packaging and test fab that enables 3DFabric integration of front-end to back-end process and test services. It supports AI, mobile applications, and other products, enabling customers to achieve product success and seize market opportunities.
On April 21, TSM signed a 20,000GWh renewable energy joint procurement agreement with ARK Power, a subsidiary of ARK Solar Energy. The agreement will enable the company’s suppliers and subsidiaries to purchase renewable energy and assist with power assessment and planning services. This reflects his TSM commitment to sustainable development and green manufacturing.
On May 9th, POWI announced the SCALE-iFlex™ LT NTC family of IGBT/SiC module gate drivers. SCALE-iFlex LT gate drivers increase the current-carrying capacity of multiple parallel modules by 20% for improved current-sharing accuracy, allowing users to significantly improve chip utilization in converter stacks. This should bode well for the company.
Also on March 21, POWI launched a 900-volt gallium nitride (GaN) extension to its InnoSwitch3™ family of flyback switcher ICs. Powered by the company’s proprietary His PowiGaN™ technology, the new IC delivers up to 100 Watts with >93% efficiency, eliminating the need for heatsinks and streamlining designs in space-constrained applications.
Recent financial results
For the first quarter ended March 31, 2023, TSM’s net revenues were $16.72 billion, up 3.6% year-over-year. gross profit It increased 4.9% year-on-year to $9.42 billion. Operating profit was $7.6 billion, up 3.3% year-on-year. Additionally, TSM’s net income and EPS increased 2%, 2.1% year over year to $6.8 billion, $1.31.
POWI’s net revenue for the first quarter ended March 31, 2023 was $106.3 million, down 41.6% year-on-year. Non-GAAP operating income was $13.61 million, down 77.6% year-over-year. In addition, the company’s non-GAAP net income and non-GAAP net earnings per share decreased 74.5% and 73.1% year-over-year to $14.22 million and $0.12, respectively.
Past and expected financial performance
Over the past three years, TSM’s revenue and EBITDA grew at a CAGR of 25.2% and 29.8%, respectively. Moreover, the company’s normalized net profit and EPS increased at a CAGR of 36.5% and 35.6% respectively over the same period. Also, leveraged free cash flow increased at a CAGR of 22.1% over the same period.
Analysts expect TSM’s fiscal year ending December 2023 revenue and EPS to fall 8% to $68.6 billion and 23.4% to $5.03, respectively. The company’s revenue and EPS in 2024 are expected to grow 20.8% and 23.8% year-on-year to $82.88 billion and $6.23, respectively.
POWI’s revenue and EBITDA increased at 9.3% and 28.4% CAGR respectively over the past three years, while leverage-free cash flow increased at 21.1% CAGR. However, the company’s net profit and EPS declined at a CAGR of 13.4% and 12.1% respectively over the same period.
For the fiscal year ending December 2023, POWI’s revenue and EPS are expected to decline 16.2% and 39.3% year over year to $545.57 million and $2, respectively. Additionally, analysts expect the company’s revenue and EPS to grow 23.4% and 43.6% year-on-year in 2024 to $673.34 million and $2.87, respectively.
Profitability
TSM’s revenue in the last 12 months is 129.8 times the revenue generated by POWI. Moreover, TSM is relatively profitable, with a 12-month gross margin of 59.68% compared to POWI’s 55.66%. TSM’s EBITDA margin for the last 12 months was 68.25%, higher than POWI’s 30.25%.
In addition, TSM’s ROE, ROA and ROTC over the past 12 months are 37.7%, 20.17% and 19.80%, significantly higher than POWI’s 16.61%, 15.60% and 10.77% respectively.
evaluation
In terms of futures P/E, TSM currently trades at 20.70x, 224.2% lower than POWI, which trades at 67.11x. TSM’s future EV/sales multiple of 6.68 is lower than POWI’s 9.54. Moreover, TSM’s 9.87x future EV/EBITDA is 20.4%, which is significantly lower than POWI’s 37.54x.
Also, TSM’s trailing 12-month Price to Book multiple is 4.77x compared to POWI’s 7.28x, and TSM’s trailing 12-month price/cash flow multiple is 9.05x, better than POWI’s 35.35x. Significantly lower.
Therefore, TSM is relatively affordable.
power rating
TSM’s overall rating is B, which corresponds to our own rating of ‘Buy’. power rating system. Conversely, POWI has an overall rating of C, which is equivalent to neutral. The POWR rating is calculated by considering 118 different factors, with each factor being optimally weighted.
Our proprietary rating system also evaluates each stock based on eight different categories. TSM scores a B grade on sentiment in line with its solid financial profile and optimistic analyst expectations. In contrast, POWI has a sentiment grade of C, consistent with deteriorating financial conditions and expectations of various analysts.
Of the 92 stocks, Semiconductor & wireless chip In the industry, TSM is ranked 26th and POWI is ranked 60th.
In addition to the above, we also evaluated both stocks for growth, stability, momentum, quality and value. click here To view the TSM ratings, get all POWI ratings here.
winner
Despite the short-term economic downturn, the semiconductor industry is poised for significant long-term growth due to the critical role of chips in end-use applications across multiple sectors including electronics, agriculture, healthcare, automotive and industrial equipment. in a position to accomplish.
Moreover, the introduction of advanced technology and increased government investment should facilitate the expansion of the industry. Given the industry’s rosy growth prospects, semiconductor stocks TSM and POWI should grow significantly in the near future.
However, POWI’s relatively poor financial condition, poor profitability, overvaluation and bleak growth prospects make competitor TSM a better buy this week.
Our research shows that investing in stocks with an overall rating of ‘strong buy’ or ‘buy’ increases your odds of success.View all the top stocks in the semiconductor and wireless chip industry here.
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TSM shares rose $1.30 (+1.25%) in pre-market trading on Thursday. Year-to-date, the TSM is up 40.52%, compared to the benchmark S&P 500 index, which is up 17.51% over the same period.
About the Author: Mangeet Kaur Bounds
Mangeet’s keen interest in the stock market led him to become an investment researcher and financial journalist. Using a fundamental approach to analyzing stocks, Manguito seeks to help retail investors understand the underlying factors before making investment decisions.
post Taiwan Semiconductor Manufacturing (TSM) vs. Power Integration (POWI): Which Chip Stocks Are Worth Buying This Week? first appeared in stocknews.com