Worsening supply chain disruptions due to sanctions placed on Russia in response to its invasion of Ukraine have been deepening the global semiconductor shortage. Furthermore, since Russia and Ukraine are critical suppliers of neon gas and palladium, which are used to produce semiconductor chips, the war between the two countries could lead to further chip production disruptions worldwide. However, because the demand for semiconductors remains strong due to the rising adoption of advanced technologies and continuing digitization, and the industry is ramping up production with the help of government and private investments, companies in this space should benefit over the long run.
Investors’ interest in the semiconductor space is evident in the ProShares UltraShort Semiconductors ETF’s (SSG) 16.1% returns year-to-date versus the SPDR S&P 500 ETF Trust’s (SPY) 7.1% decline.
The recently passed $52 billion CHIPS Act should help the industry grow. The bill aims to strengthen domestic production and manufacturing of semiconductor chips with enhanced research and solid federal funding. According to Research and Markets, the global semiconductor market is expected to grow at a CAGR of over 6% through 2026. So, we think it could be wise to buy the price dip in quality semiconductor stocks Kulicke and Soffa Industries, Inc. (KLIC) and Alpha and Omega Semiconductor Limited (AOSL), which look undervalued at their current price levels.
Click here to checkout our Semiconductor Industry Report for 2022
Kulicke and Soffa Industries, Inc. (KLIC)
Based in Singapore, KLIC designs, manufactures, and sells capital equipment and tools to assemble semiconductor devices. It operates in two segments: Capital Equipment and Aftermarket Products and Services.
On Feb. 2, 2022, Fusen Chen, KLIC’s President and CEO, stated, "During the December quarter, we received acceptance and recognized revenue for an emerging silicon photonics application. This represents a recent example of our progress to expand served markets through long-term development, ongoing customer engagements, and new system acceptance. Over the coming quarters, we expect to continue driving momentum across several other key growth areas."
KLIC’s net revenue increased 72.1% year-over-year to $460.89 million for its fiscal 2022 first quarter, ended Jan. 1, 2022. The company’s net income came in at $133.61 million, up 176.3% year-over-year, while its EPS was $2.11, up 174% year-over-year.
KLIC’s 1.7x forward EV/S is 44.7% lower than the 3.07x industry average Also, its 2.32x forward P/S is 27.2% lower than the 3.19x industry average.
Analysts expect KLIC’s revenue to be $1.59 billion in its fiscal year 2022, representing a 5% year-over-year rise. The company’s EPS is expected to increase 20% per annum for the next five years. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past six months, the stock has declined 10.9% in price to close yesterday’s trading session at $60.22.
It is no surprise that KLIC has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
In addition, it has a B grade for Value, Momentum, and Quality. KLIC is ranked #28 of 97 stocks in the A-Rated Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for KLIC (Growth, Stability, and Sentiment).
Alpha and Omega Semiconductor Limited (AOSL)
AOSL in Sunnyvale, Calif., designs, develops, and supplies power semiconductor products for computing, consumer electronics, communication, and industrial applications in Hong Kong, China, South Korea, the United States, and internationally. Its market capitalization is $1.39 billion.
On Feb. 7, 2022, AOSL Chairman and CEO Dr. Mike Chang said, “As we look to the future, we now have our sights set on action planning and marching towards $1 billion annual revenues with much stronger and more sophisticated R&D capabilities and supply chain operations, and with most of our customers being the world’s leading OEMs in the markets that we serve.”
AOSL’s revenue came in at $193.30 million for its fiscal 2022 second quarter, ended Dec. 31, 2021, up 21.7% year-over-year. Furthermore, its non-GAAP net income came in at $34 million, up 91% year-over-year, while its non-GAAP EPS came in at $1.20, up 84.6% year-over-year.
AOSL’s 1.39x forward EV/S is 54.6% lower than the 3.07x industry average. Also, its 1.87x forward P/S is 41.2% lower than the 3.19x industry average.
Analysts expect AOSL’s revenue to increase 17.5% year-over-year to $771.63 million in its fiscal year 2022. Its EPS is expected to increase 57.3% year-over-year to $4.61 in its fiscal year 2022. The stock surpassed EPS estimates in each of four trailing quarters. It has declined 7% in price year-to-date to close yesterday’s trading session at $56.35.
AOSL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system.
It has an A grade for Value and a B grade for Growth. It is ranked #41 in the Semiconductor & Wireless Chip industry. Click here to see the additional ratings for AOSL (Momentum, Stability, Sentiment, and Quality).
Click here to checkout our Semiconductor Industry Report for 2022
KLIC shares were unchanged in premarket trading Friday. Year-to-date, KLIC has declined -0.53%, versus a -7.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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