The semiconductor industry is growing amid its growing applications across sectors. While I think Trio-Tech International (TRT) is worth buying now, Advanced Micro Devices, Inc. (AMD) could be best avoided for the reasons discussed in this article.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the chip industry is well-positioned for growth.
The pandemic spurred digital solutions adoption, amplifying chip demand. Government incentives and diverse applications in electronics, automotive, and emerging tech like artificial intelligence (AI) and the Internet of Things (IoT) drive the global semiconductor market's growth.
In July 2022, President Biden enacted the CHIPS and Science Act, allocating $53 billion to support U.S. semiconductor manufacturing, research, and workforce development and a 25% tax credit for capital investments in semiconductor manufacturing.
According to Gartner, AI chip revenue in the semiconductor industry is expected to reach $53.4 billion this year, marking a 20.9% growth from the previous year. This growth is driven by the increasing demand for high-performance GPUs and optimized semiconductor devices crucial for generative AI platforms.
Precedence Research forecasts the global semiconductor market to achieve $1.88 trillion by 2032, with a CAGR of 12.3%.
Considering these conducive trends, let’s take a look at the fundamentals of the two above-mentioned Semiconductor & Wireless Chip stocks.
Stock to Buy:
Trio-Tech International (TRT)
TRT and its subsidiaries, offer manufacturing, testing, and distribution services to the semiconductor industry. It operates through four segments: Manufacturing, Testing Services, Distribution, and Real Estate.
On May 15, 2023, TRT announced the launch of its Dynamic HTOL Test System for electric vehicles, which has received a significant initial order of $1,000,000 and holds potential for long-term growth and profitability in the GaN & SiC power semiconductor market.
In terms of the trailing-12-month EBITDA margin, TRT’s 16.77% is 82.8% higher than the 9.17% industry average. Its 3.57% trailing-12-month net income margin is 75.5% higher than the 2.03% industry average. Likewise, the stock’s 10.40% trailing-12-month Capex/Sales is 329.3% higher than the 2.42% industry average.
For the fiscal year that ended June 30, TRT’s manufacturing revenues increased 2.2% year-over-year to $13.83 million. Its testing services revenues increased 18.8% from the prior year quarter to $23.13 million. Also, the company’s net income attributable to TRT and EPS came in at $2.40 million and $0.57, respectively.
Over the past six months, TRT has gained 60.3% to close the last trading session at $6.89.
TRT’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #19 out of 91 stocks in the Semiconductor & Wireless Chip industry. It has an A grade for Momentum and a B for Value. Click here to see TRT’s Growth, Stability, Sentiment and Quality ratings.
Stock to Sell:
Advanced Micro Devices, Inc. (AMD)
AMD operates as a semiconductor company worldwide. It operates in four segments: Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs), semi-custom system-on-chip (SoC) products, field programmable gate arrays (FPGA), and adaptive SoC products.
In terms of forward EV/EBITDA, AMD’s 38.05x is 194.3% higher than the 12.93x industry average. Likewise, its 6.48x forward EV/Sales is 169.2% higher than the 2.41x industry average. Its 34.06x forward non-GAAP P/E is 67.3% higher than the 20.36x industry average.
In terms of the trailing-12-month asset turnover ratio, AMD’s 0.32x is 47.6% lower than the 0.62x industry average.
AMD’s revenues for the fiscal second quarter ended June 30, 2023, declined 18.2% year-over-year to $5.36 billion. Its adjusted gross profit fell 24.7% year-over-year to $2.67 billion. The company’s adjusted net income declined 44% year-over-year to $948 million. Moreover, its adjusted EPS decreased 44.8% year-over-year to $0.58.
For the fiscal year ending December 31, 2023, AMD’s EPS and revenue are expected to decline 21.4% and 3.3% year-over-year to $2.75 and $22.82 billion, respectively. Over the past three months, the stock has declined 14.9% to close the last trading session at $93.67.
AMD’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.
It has a D grade for Value, Stability, and Quality. It is ranked #84 in the same industry. In total, we rate AMD on eight different levels. Beyond what we stated above, we also have given AMD grades for Growth, Momentum, and Sentiment. Get all the AMD’s ratings here.
What To Do Next?
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AMD shares were trading at $96.87 per share on Friday morning, up $3.20 (+3.42%). Year-to-date, AMD has gained 49.56%, versus a 9.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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