The Fed’s aggressive rate hikes to tame the sky-high inflation and the Russia-Ukraine war are straining the already disrupted supply chains in the semiconductor industry. Moreover, the industry is experiencing a consumer-led slowdown. The warnings of slowing demand for chips have led to several semiconductor stocks tumbling in price.
However, the CHIPS and Science Act, aimed to boost American semiconductor research, development, and production, strengthening manufacturing capabilities and easing supply chain issues, should bolster the industry’s long-term growth opportunities.
Although the industry is witnessing a setback, it is expected to enjoy robust demand in the coming years. The growing demand for efficient and faster operating memory chips in industrial applications and a rise in the use of consumer electronic equipment should drive growth. The global market is expected to grow at a CAGR of 6.2% from 2022 to 2031.
Therefore, investors may consider buying the dip in fundamentally strong chip stocks Broadcom Inc. (AVGO) and QUALCOMM Incorporated (QCOM). These stocks have a stable dividend-paying history.
Broadcom Inc. (AVGO)
AVGO creates, manufactures, and distributes a range of semiconductor products globally. The company operates in two segments, Semiconductor Solutions, and Infrastructure Software.
On October 13, AVGO announced it is expanding its silicon, software, and hardware storage connectivity products with enhanced performance, capabilities, and power, delivering simplified interoperability and support for the ecosystem. This new expansion is expected to bolster the company’s market position.
On October 11, AVGO announced the availability of the industry’s first open end-to-end networking solution jointly integrated by the company and Arista Networks, Inc. (ANET), optimized for Remote Direct Memory Access over converged ethernet. It facilitates hyperscaler and enterprise data center operators to deploy fully optimized systems. This might drive up the revenues of the company in the near term.
On September 2, AVGO declared a quarterly cash dividend of $4.10 per share on its common stock, payable on September 30, 2022. Its annual dividend of $16.40 yields 3.59% on prevailing prices. The company’s dividend payouts have increased at a 15.7% CAGR over the past three years and a 32.1% CAGR over the past five years. The company has a record of 10 years of consecutive dividend growth.
AVGO’s net revenues grew 24.9% year-over-year to $8.46 billion for the third quarter ended July 31, 2022. Its adjusted EBITDA rose 30.4% from its prior-year quarter to $5.38 billion. The company’s non-GAAP net income came in at $4.24 billion, up 35.8% year-over-year, while its EPS increased 39.8% year-over-year to $9.73.
Analysts expect AVGO’s revenue to increase 20.8% year-over-year to $33.17 billion in the current fiscal year ending October 2022. Its EPS is expected to increase 33.5% year-over-year to $37.40 in the same year. Additionally, the company has surpassed EPS estimates in all four trailing quarters, which is impressive.
The stock gained 1.5% intraday to close the last trading session at $456.52. The stock has declined 31.4% year-to-date.
AVGO’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AVGO has an A grade for Quality and a B grade for Growth and Sentiment. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #7 out of 93 stocks.
Beyond what we’ve stated above, we have also given AVGO grades for Value, Momentum, and Stability. Get all AVGO ratings here.
QUALCOMM Incorporated (QCOM)
QCOM creates and markets key technologies for the global wireless market. The company operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.
On September 22, 2022, QCOM announced that the company’s automotive design-win pipeline increased to $30 billion, driven by increased adoption of its Snapdragon Digital Chassis solutions across the auto industry. The expanded pipeline might accelerate the growth of the company.
On October 14, QCOM announced a quarterly cash dividend of $0.75 per common share, payable on December 15, 2022. Its annual dividend of $3.00 yields 2.58% on prevailing prices. The company’s dividend payouts have increased at a 4.9% CAGR over the past three years and a 5.4% CAGR over the past five years. The company has a record of 18 years of consecutive dividend growth.
QCOM’s total revenues increased 35.7% year-over-year to $10.94 billion for the third quarter that ended June 26, 2022. Its non-GAAP operating income grew 50.3% year-over-year to $4.01 billion. The company’s non-GAAP net income improved 52.5% year-over-year to $3.36 billion, while its non-GAAP EPS rose 54.2% from its year-ago value to $2.96.
QCOM’s revenue is expected to increase 22% year-over-year to $11.37 billion in the fiscal fourth quarter ended September 2022. Its EPS is expected to grow 23.5% year-over-year to $3.15 in the same quarter. It surpassed EPS estimates in all four trailing quarters.
The stock has gained 4.7% over the past five days to close the last trading session at $116.38. The stock has declined 36.4% year-to-date.
QCOM’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system.
QCOM has a B grade for Value, Sentiment, and Quality. It is ranked #13 in the same industry.
Click here for the additional POWR Ratings for Growth, Momentum, and Stability for QCOM.
AVGO shares were trading at $462.49 per share on Tuesday morning, up $5.97 (+1.31%). Year-to-date, AVGO has declined -28.85%, versus a -18.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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