News

For Immediate Release

Chicago, IL – January 9, 2024 – Today, Zacks Equity Research discusses Advanced Micro Devices AMD, ASE Technology ASX, Cirrus Logic CRUS and QuickLogic QUIK.

Industry: Semiconductors

Link: https://www.zacks.com/commentary/2206808/4-electronics-semiconductor-stocks-to-escape-macro-headwinds

The challenging global macroeconomic environment and end-market volatility have affected the Zacks Electronics - Semiconductors industry. Geo-political tensions, unfavorable forex and rising inflationary pressure also weigh heavily on the industry's prospects.

Nevertheless, industry players likeAdvanced Micro Devices, ASE Technology, Cirrus Logic and QuickLogic have been benefiting from the increasing demand for high-volume consumer electronic devices, such as digital media players, smartphones and tablets, and the strong uptake of efficient packaging, machine vision solutions and robotics.

Additionally, the growing proliferation of AI, Machine Learning, Blockchain, Internet of Things, Augmented Reality/Virtual Reality (AR/VR) and industrial revolution 4.0 (which focuses on interconnectivity and automation) should continue to drive the industry's growth. Easing supply-chain constraints are also benefiting the industry participants.

Industry Description

The Zacks Electronics – Semiconductors industry comprises firms that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection and image-recognition capabilities to develop intelligent and connected products. The participants primarily cater to end-markets constituting consumer electronics, communications, computing, industrial and automotive.

These companies are raising their spending on research and development to stay afloat in an era of technological advancements and changing industry standards. The underlined industry is experiencing solid demand for advanced electronic equipment, helping these firms increase their investments in cost-effective process technologies.

What's Shaping the Future of the Electronics - Semiconductors Industry?

Macroeconomic Headwinds Pose Concerns: Rising inflationary pressure and fears of global recession have negatively impacted the rate of deal wins. Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.

Geo-political Tensions Are Worrisome: The ongoing Russia-Ukraine war and, most importantly, the souring relationship between the United States and China are creating headwinds. Increasing dependency on AI-backed electronic devices on semiconductors and current restrictions ordered by the United States on trading with China, the main hub for chip production, is a significant negative for the underlined industry.

Smart Devices Aiding Computing Demand: Smart devices need computing and learning capabilities to perform face detection, image recognition and video analytics capabilities. These require high processing power, speed and memory; low power consumption; and better graphic processors and solutions, which bode well for the industry. Graphic solutions help increase the image rendering rate, and improve image resolution and color definition.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #189, which places it in the bottom 25% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group's earnings growth potential. Since Sep 30, 2023, the industry's earnings estimates for the current year have moved 4.2% down.

Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry choices, it is worth taking a look at the industry's shareholder returns and current valuation first.

Industry Outperforms S&P 500 & Sector

The Zacks Electronics - Semiconductors industry has outperformed the Zacks S&P 500 composite and surpassed the broader Zacks Computer and Technology sector in the past year.

The companies in the industry have collectively surged 74.6% compared with the S&P 500 and the broader sector's rallies of 22% and 45.1%, respectively.

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 25.67X versus the S&P 500 and the sector's 19.6X and 24.04X, respectively.

Over the past five years, the industry has traded as high as 44.41X, as low as 9.35X and recorded a median of 16.55X.

4 Electronics Semiconductor Stocks to Watch

Cirrus Logic: Austin, TX-headquartered CRUS is gaining from strong customer engagement across its portfolio. Strength across Cirrus Logic's audio and haptic solutions remains a plus point. Growing momentum across advanced power and battery-related technologies is a positive.

The Zacks Rank #1 (Strong Buy) company, which develops, manufactures and markets analog, mixed-signal and audio DSP integrated circuits, is expected to gain well from its deepening focus on next-generation technology like wearables, gaming and AR/VR. The company is increasing the production of its camera controller product for smartphones, which is another positive.

Cirrus Logic has lost 4% in the past year. The Zacks Consensus Estimate for the company's fiscal 2024 earnings has moved north by 0.4% to $5.26 per share in the past 60 days.

QuickLogic: The San Jose, CA-based company develops ultra-low-power multi-core voice-enabled SoCs, embedded FPGA IP and Endpoint AI solutions. QUIK is gaining from the growing demand for its IP-related products. Strength in its technology and Australis IP generator is noteworthy.

A solid momentum in QuickLogic's Strategic Radiation Hardened FPGA Technology is another major positive. Growing contributions from the large government contract for this particular technology are driving the company's top-line growth. Apart from this, the Zacks Rank #2 (Buy) company is benefiting from increasing conversions from funnel opportunities, which are leading to new bookings.

QuickLogic has gained 153.8% in the past year. The Zacks Consensus Estimate for QUIK's 2023 earnings has moved north by 120% to 11 cents per share over the last 60 days.

Advanced Micro Devices: The Santa Clara-based company is benefiting from portfolio strength and an expanding partner base. Strong demand for EPYC processors has been a growth driver. The launch of the Ryzen 8040 series processor with Ryzen AI and Instinct MI300 Series data center AI accelerators bodes well for AMD's top-line growth.

The Zacks Rank #3 (Hold) company offers a wide range of high-performance and adaptive processor technologies, combining CPUs, GPUs, FPGAs, Adaptive SoCs and deep software expertise. The company expects to witness strong growth in the data center market, thanks to the solid adoption of fourth-generation AMD EPYC CPUs.

Advanced Micro Devices has gained 106.1% in a year. The Zacks Consensus Estimate for AMD's 2023 earnings was unchanged at $2.65 per share over the last 60 days.

ASE Technology: The Taiwan-based provider of semiconductor manufacturing services in assembly and test is gaining from its robust ATM business, which is riding on the solid momentum across product categories, such as wire-bond and advanced packaging, test solutions, consumer, communications, and computing. The strengthening utilization of ATM factory lines remains another positive. The increasing use of advanced packaging in applications across computing and communications end markets is a tailwind for ASX.

The Zacks Rank #3 company is well-positioned to capitalize on the increased consumer demand for small and delicate electronics solutions on strength in wire-bonded products and advanced packaging.

ASE Technology has gained 24.6% in the past year. The Zacks Consensus Estimate for ASX's 2023 earnings was unchanged at 44 cents per share over the last 60 days.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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