Even though supply constraints exacerbated by the Russia-Ukraine war are impacting the global semiconductor industry, the robust demand environment is allowing companies to raise prices for their chips and generate substantial profits. The demand for chips is rising due to the increasing use of advanced technology-based devices amid the continued hybrid working culture. In addition, the growing electrical vehicle (EV) market is also boosting the demand for chips.
While the semiconductor manufacturers are ramping up production with government support to meet the mounting demand, the ongoing chip shortage may not end soon. With the growing applicability of chips in the tech era, defined by the Internet of Things (IoT), Artificial intelligence (AI), 5G network, and cloud computing, the demand for chips should keep rising. According to Research and Markets, the global semiconductor market is expected to grow at a CAGR of over 6% by 2026.
Given this favorable backdrop, it is wise to invest in chip stocks such as MaxLinear, Inc. (MXL) and Alpha and Everspin Technologies, Inc. (MRAM) that are trading at a considerable discount to their peers but have immense upside potential.
MaxLinear, Inc. (MXL)
MXL provides radiofrequency, high-performance analog, and mixed-signal communications systems-on-chip solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications worldwide. It serves electronics distributors, module makers, original equipment manufacturers, and original design manufacturers.
On May 5, 2022, MXL and Silicon Motion (SIMO) announced that they have entered into a definitive agreement under which MXL will acquire SIMO in a cash and stock transaction that values the combined company at $8 billion in enterprise value. Kishore Seendripu, Ph.D., Chairman, and CEO of MXL, said, "The enhanced scale of the combined organization creates a new significant $2B+ player in the semiconductor industry with compelling positions across a diversified set of end-markets.”
MXL’s net revenue increased 8% year-over-year to $263.93 million for the fiscal first quarter ended March 31, 2022. The company’s non-GAAP operating income grew 14.9% year-over-year to $88.38 million, while its non-GAAP net income came in at $80.24 million, representing a 15% year-over-year increase. Also, its non-GAAP EPS came in at $1, up 16.3% year-over-year.
Analysts expect MXL’s EPS and revenue to increase 90.6% and 36.2% year-over-year to $1.01 and $279.76 million, respectively, for the quarter ending June 30, 2022. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has declined 54.9% year-to-date to close yesterday’s trading session at $34.01.
MXL’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has an A grade for Growth and a B grade for Value and Quality.
Click here to see the additional POWR Ratings for MXL (Stability, Momentum, and Sentiment). MXL is ranked #14 out of 96 stocks in the B-rated Semiconductor & Wireless Chip industry.
Everspin Technologies, Inc. (MRAM)
MRAM manufactures and sells magnetoresistive random access memory products internationally. It offers Toggle MRAM, spin-transfer torque MRAM, tunnel magneto resistance sensor products, and foundry services for embedded MRAM. The company provides its products for applications, including data center, industrial, medical, automotive/transportation, and aerospace markets.
On March 31, 2022, Sanjeev Aggarwal, President & CEO of MRAM, said, “We are optimistic about our business outlook and expect our new xSPI family of Low Density STT-MRAM products to drive growth across industrial and IoT markets."
MRAM’s net revenue increased 39% year-over-year to $14.35 million for the fiscal first quarter ended March 31, 2022. The company’s adjusted EBITDA grew 278% year-over-year to $3.09 million, while its net income came in at $1.94 million compared to a loss of $0.46 million in the prior-year quarter. Also, its EPS came in at $0.09 compared to a loss of $0.02 in the year-ago period.
MRAM’s EPS is expected to increase 33.3% year-over-year to $0.28 in fiscal 2023. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. Also, the company’s revenue is expected to increase 19% year-over-year to $14.10 million for the quarter ending June 30, 2022. The stock has declined 54.5% year-to-date to close yesterday’s trading session at $5.14.
MRAM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system. It has an A grade for Sentiment and a B grade for Value and Quality.
Click here to access the additional POWR Ratings for MRAM (Growth, Stability, and Momentum). MRAM is ranked #31 in the same industry.
MXL shares were trading at $34.54 per share on Friday afternoon, up $0.53 (+1.56%). Year-to-date, MXL has declined -54.18%, versus a -22.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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