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When thinking about an industry group in the stock market, you can look ahead at sales and profit estimates, or you can look back to see which companies have been faring best by common measures.
In October, estimated sales figures for 60 chip makers and manufacturers of related equipment showed that analysts expected Nvidia Corp.
NVDA,
to have the fastest pace of sales growth through calendar 2025.
Nvidia took the industry lead last year through its dominance of the market for graphics processing units (GPU) being deployed by data centers to support their corporate customers’ rollout of artificial intelligence technology. Nvidia’s stock returned 239% in 2023, while the iShares Semiconductor ETF
SOXX,
which tracks the PHLX Semiconductor Index of 30 stocks
SOX,
returned 67%. It was a good year for the broad stock market, with the SPDR S&P 500 ETF Trust
SPY
returning 26%.
Now we are taking a look back — but not very far back — to see which semiconductor companies have shown improved pricing power while also increasing their operating profitability.
Screening the semiconductor industry for two factors
We began the screen with the 30 companies whose stocks are held within the SOXX portfolio, then added the 30 additional companies in the S&P Composite 1500 Index
XX:SP1500
that are in the semiconductor industry, as determined by FactSet, or in the Semiconductors and Semiconductor Equipment Global Industry Classification Standard group. The S&P Composite 1500 is made up of the S&P 500
SPX,
the S&P MidCap 400
MID
and the S&P SmallCap 600
SML.
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We screened the 60 semiconductor companies for the following:
- Improved gross profit margins. A company’s gross margin is its net sales, less the cost of goods or services sold, divided by sales. Net sales are sales minus returns and discounts. The cost of goods or services sold includes the actual costs of making the items or providing the services. An expanding gross margin is a good sign — some companies are forced to lower prices to defend market share, which lowers the margin.
- Improved operating margins. A company’s net operating margin goes further, subtracting more overhead and other expenses that aren’t directly related to the production of goods and services sold. It is, essentially, earnings before interest and taxes, divided by sales.
Based on their most recent available quarterly filings, 16 companies, including Nvidia, showed improved quarterly gross margins and operating margins from the year-earlier fiscal quarters. Here they are, sorted by market capitalization:
| Company | Ticker | Market cap. ($bil) | Quarterly gross margin | Gross margin – year-earlier quarter | Quarterly operating margin | Operating margin – year-earlier quarter |
| Nvidia Corp. |
NVDA, |
$1,551 | 73.95% | 53.57% | 59.54% | 16.98% |
| Intel Corp. |
INTC, |
$181 | 45.74% | 39.17% | 25.68% | 21.29% |
| Applied Materials Inc. |
AMAT, |
$138 | 47.01% | 45.65% | 31.25% | 31.11% |
| KLA Corp. |
KLAC, |
$81 | 61.95% | 58.72% | 44.03% | 43.51% |
| Microchip Technology Inc. |
MCHP, |
$47 | 61.04% | 59.35% | 49.05% | 48.77% |
| TE Connectivity Ltd. |
TEL, |
$45 | 34.66% | 30.15% | 24.15% | 20.31% |
| Entegris Inc. |
ENTG, |
$18 | 35.56% | 30.82% | 13.86% | 12.62% |
| First Solar Inc. |
FSLR, |
$16 | 46.84% | 3.36% | 45.51% | 2.07% |
| Enphase Energy Inc. |
ENPH, |
$15 | 46.31% | 41.59% | 24.94% | 23.32% |
| Lattice Semiconductor Corp. |
LSCC, |
$8 | 65.49% | 64.64% | 35.82% | 34.77% |
| Fabrinet |
FN, |
$8 | 12.85% | 12.05% | 11.64% | 10.57% |
| Rambus Inc. |
RMBS, |
$8 | 69.40% | 68.25% | 28.34% | 28.12% |
| MKS Instruments Inc. |
MKSI, |
$7 | 38.20% | 35.43% | 22.64% | 22.33% |
| Allegro MicroSystems Inc. |
ALGM, |
$5 | 57.89% | 55.54% | 31.95% | 29.26% |
| Cirrus Logic Inc. |
CRUS, |
$4 | 51.26% | 50.18% | 24.88% | 24.68% |
| Veeco Instruments Inc. |
VECO, |
$2 | 42.15% | 39.23% | 16.60% | 14.25% |
| Source: FactSet | ||||||
It is the nature of some businesses to have higher profit margins than others. So a direct comparison between companies with different business models may not be useful. But it cannot hurt for any company’s margins to improve.
Leaving the group in the same order, here’s a summary of ratings and price targets among analysts polled by FactSet:
| Company | Ticker | Share “buy” ratings | Share neutral ratings | Share “sell” ratings | Jan. 30 price | Consensus price target | Implied 12-month upside potential |
| Nvidia Corp. |
NVDA, |
92% | 8% | 0% | $627.74 | $674.54 | 7% |
| Intel Corp. |
INTC, |
17% | 66% | 17% | $42.92 | $44.32 | 3% |
| Applied Materials Inc. |
AMAT, |
63% | 34% | 3% | $166.24 | $172.43 | 4% |
| KLA Corp. |
KLAC, |
52% | 40% | 8% | $595.35 | $660.70 | 11% |
| Microchip Technology Inc. |
MCHP, |
69% | 31% | 0% | $85.96 | $93.66 | 9% |
| TE Connectivity Ltd. |
TEL, |
50% | 50% | 0% | $145.23 | $161.33 | 11% |
| Entegris Inc. |
ENTG, |
69% | 31% | 0% | $121.96 | $115.76 | -5% |
| First Solar Inc. |
FSLR, |
81% | 19% | 0% | $149.03 | $230.14 | 54% |
| Enphase Energy Inc. |
ENPH, |
55% | 43% | 2% | $106.35 | $125.49 | 18% |
| Lattice Semiconductor Corp. |
LSCC, |
69% | 31% | 0% | $61.19 | $77.64 | 27% |
| Fabrinet |
FN, |
57% | 29% | 14% | $219.83 | $202.64 | -8% |
| Rambus Inc. |
RMBS, |
86% | 14% | 0% | $71.43 | $79.95 | 12% |
| MKS Instruments Inc. |
MKSI, |
71% | 29% | 0% | $110.19 | $100.17 | -9% |
| Allegro MicroSystems Inc. |
ALGM, |
78% | 22% | 0% | $26.56 | $39.51 | 49% |
| Cirrus Logic Inc. |
CRUS, |
80% | 20% | 0% | $78.53 | $93.01 | 18% |
| Veeco Instruments Inc. |
VECO, |
71% | 29% | 0% | $32.50 | $34.57 | 6% |
| Source: FactSet | |||||||
Keep in mind that analysts working for brokerage firms tend to set 12-month price targets. That can be a short period for long-term investors.
If you are considering individual stocks for investment, you should do your own research to form your own opinion about companies’ ability to remain competitive. One way to begin this process is by clicking on the tickers.
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