The semiconductor industry is vast and ripe for taking. It’s a $5 trillion market. No matter the inflation rate or interest rates, memory, advanced processors, and storage will continue to be in high demand. This trend is fueled by electric vehicles, 5G technologies, smartphones, and more advanced technology.
We see rising demand from this trend in two high-growth stocks in the semiconductor sector, namely Taiwan Semiconductor Manufacturing ($134.03|0.80%) and Micron Technology ($111.01|-0.69%). The price-to-earning (P/E) ratio relative to future growth expectations is very attractive for both stocks, especially Micron. One insight from our analysis is that both stocks have outperformed the broader market on several counts, and they have the fundamentals to provide leverage for the next bull run.
Taiwan Semiconductor ($134.03|0.80%)
Taiwan Semiconductor Manufacturing has established its name as the leading chip foundry globally. Its returns in revenue and profits have seen double-digit growth for a long time, and it is still keeping that record. You could say this company has every leading chip company as part of its clientele.
TSMC has seen much growth in recent times. Its revenue grew 25% over 2020, and analysts expect another 29% growth over 2022 to reach about $73 billion.
The company’s growth in the market is multipronged. That’s what is most impressive about TSMC’s performance. Last year, the revenue from smartphones rose 8%, and it accounted for more than 44% of TSMC’s total revenue. Datacenter or high-performance computing sales also shot up to about 34%, while the Internet Of Things grew by 21%. The fastest-growing category was in Automotives, which saw record growth of 51% year over year.
The recent increase in demand for 5G phones and increased spending on data centers are the drivers for TSMC's outstanding performance. The year 2021 saw the company spending $30 billion to capture this demand and drive its growth. In addition, there are plans to increase the capital budget this year to $40 billion to accelerate the development of advanced process technologies chip designs.
The future is filled with the stars. Management expects revenue growth to surpass 20% per year on an annualized basis. This means there would be similar growth in profits. Currently, the stock is selling at a Price-Earning ratio of 22 with a dividend yield of 1.58%.
Micron Technology ($111.01|-0.69%)
Micron is a leader in manufacturing memory and storage products for personal computers. It also sees a growing demand for its products in data centers, electric vehicles, and 5G. In the fiscal year 2021 that ended September 2, revenue grew 29%, and 2022 has been a good start for the company.
Management expects to set new records in revenue this year. Already, the top line has increased by 33% in the first quarter of 2022 and analysts expect a growth of 16% for the full year.
According to recently released reports, the PC market is the focus of management in the near term. There is a healthy demand for PCs right now as households are beginning to buy multiple PCs. There is also a brisk demand from the data centers business. Microsoft and Amazon are among the companies in cloud computing that continue to spend billions of dollars in acquiring new equipment. This is serving as a long term growth driver for Micron’s solid-state drives (SSDs) that data centers use.
Micron has a cheap stock price right now and is trading at a Price-Earning ratio of 10 based on 2022 Q1 fiscal year results. Analysts expect an earnings growth of 24% for this year.
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