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The Zacks Analyst Blog Highlights Broadcom, Analog Devices, QUALCOMM, GLOBALFOUNDRIES and ON Semiconductor

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For Immediate Release

Chicago, IL – June 24, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Broadcom Inc. AVGO, Analog Devices Inc. ADI, QUALCOMM Inc. QCOM, GLOBALFOUNDRIES Inc. GFS and ON Semiconductor Corp. ON.

Here are highlights from Thursday’s Analyst Blog:

Congress Shows Urgency to Clear Chipset Deal: 5 Picks

The U.S. Congress has shown urgency to clear the $52 billion bipartisan deal to subsidize U.S. semiconductor manufacturing. The bill was initiated more than a year ago but failed to see the light of day. Recently, two top Democratic leaders — House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer — met House Republican Leader Kevin McCarthy and Senate Republican Leader Mitch McConnell to negotiate an agreement.

If the deal gets converted into an act, it would give a major boost to the semiconductor industry. Moreover, the recent market turmoil has made several technology giants lucrative at the current market valuations. We have selected five semiconductor stocks with a favorable Zacks Rank, which should bolster one's portfolio going forward. These are —  Broadcom Inc., Analog Devices Inc., QUALCOMM Inc., GLOBALFOUNDRIES Inc. and ON Semiconductor Corp.

Expectation of Budgetary Support

The Senate passed the bill in June 2021 to spend $52 billion as chipset subsidy and authorized another $200 billion to boost U.S. scientific and technological innovation. The House of Representatives passed the bill on February 2022 with many trade proposals that were not included in the Senate bill.

Since then, the deadlock continued for the bill. In March 2022, the White House put pressure on the Congress to quickly pass the legislation. Democrats are hopeful that the Congress will clear the deal in July.

The bill has expressed concern that the United States had a 37% share in global semiconductor and microelectronic production in 1990, which drastically dropped to just 12% in 2021. Consequently, U.S. businesses, especially the auto and high-tech industries are suffering from an acute shortage of chipsets owing to the breakdown of the global supply chain during the pandemic.

Additionally, the Asian giant China is aggressively spending more than $150 billion to boost semiconductor manufacturing and unsettle the United States from its global leadership in this key technology. These show the urgency of the U.S. Congress to strengthen its high-tech semiconductor industry to combat Chinese competition.

Robust Projections

The use of chipsets is increasing rapidly in various industries of the economy. From consumer electronics to automakers, high-tech computers, medical devices and fighter jet missile systems, are using chipsets. However, the coronavirus-induced breakdown of the global chipset supply-chain system has created a ruckus within the economy, resulting in massive shortages of chipsets across the world.

In March 2022, Euler Hermes reported that semiconductor sales are likely to exceed $600 billion for the first time in 2022, climbing 9% after soaring 26% to $553 billion in 2021. In April, Gartner reported that Global semiconductor revenues are projected to total $676 billion in 2022, indicating an increase of 13.6% from 2021. Deloitte reported that in 2022, the global semiconductor industry is expected to reach around $600 billion.

On Apr 28, the Semiconductor Industry Association ("SIA") announced that worldwide sales of semiconductors totaled $151.7 billion during the first quarter of 2022, reflecting an increase of 23% year over year. On Jun 6, the SIA reported that global semiconductor industry sales were $50.9 billion in April 2022, marking an increase of 21.1% year over year and 0.7% sequentially.

Our Top Picks

We have narrowed our search to five large-cap U.S. semiconductor manufacturers currently trading on the dip. These stocks have positive growth potential for the rest of 2022 and witnessed solid earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Broadcom reported impressive second-quarter fiscal 2022 results. Top-line growth was driven by strength in networking and server storage segments. Networking is riding on the strong adoption of AVGO's next-gen merchant switching and routing solutions by hyperscalers, enterprises and service providers.

The aggressive adoption of Broadcom's next-generation server storage solutions by hyperscalers is expected to drive top-line growth. AVGO expects fiscal third-quarter networking and server storage revenues to grow more than 25% and 60% on a year-over-year basis, respectively. An upbeat third-quarter fiscal 2022 guidance is encouraging. The recently announced VMware acquisition will aid prospects over the long term.

Broadcom has an expected earnings growth rate of 32% for the current fiscal-year (ending October 2022). The Zacks Consensus Estimate for current fiscal-year earnings has improved 3.6% over the last 30 days. AVGO is currently trading at a 26.8% discount from its 52-week high.

QUALCOMM is focused on retaining its leadership in 5G and the chipset market, delivering low-power resilient multi-gigabit connectivity with best-in-class security. QCOM is witnessing a healthy traction in EDGE networking solutions across diverse sectors.

The buyout of Arriver will bolster QUALCOMM's ability to deliver fully integrated Advanced Driver Assistance System solutions to automakers. QCOM is well-positioned to benefit from solid 5G traction with greater visibility and diversified businesses to meet its long-term revenue targets.

QUALCOMM has an expected earnings growth rate of 46.8% for the current fiscal-year (ending September 2022). The Zacks Consensus Estimate for the current fiscal-year earnings has improved 7% over the last 60 days. QCOM is currently trading at a 36.9% discount from its 52-week high.

Analog Devices has strength across communication, consumer, industrial and automotive end-markets. Further, solid demand for high-performance analog and mixed-signal solutions has acted as a tailwind. Growing momentum across the electric vehicle space on the back of robust Battery Management System solutions remains a positive for ADI.

Growing power design wins are the other positives for Analog Devices. The solid momentum of the HEV platform across the cabin electronics ecosystem remains a tailwind for ADI. Moreover, Analog Devices remains optimistic about the growth prospects associated with its Maxim acquisition and 5G.

Analog Devices has an expected earnings growth rate of 43% for the current fiscal-year (ending October 2022). The Zacks Consensus Estimate for its current fiscal-year earnings has improved 9.6% over the last 60 days. ADI is currently trading at a 23.1% discount from its 52-week high.

GLOBALFOUNDRIES operates as a semiconductor foundry worldwide. GFS manufactures integrated circuits, which enable various electronic devices that are pervasive. The company delivers feature-rich solutions which enable its customers to develop innovative products for pervasive chips.

GLOBALFOUNDRIES manufactures a range of semiconductors, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontrollers, power management units, and microelectromechanical systems.

GLOBALFOUNDRIES has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 21.1% over the last 60 days. GFS is currently trading at a 43.6% discount from its 52-week high.

ON Semiconductor is benefiting from broad-based strength across industrial, computing, consumer and automotive end-markets for both silicon carbide and insulated-gate bipolar transistor-based products.

ON continues to gain traction among electric vehicle manufacturers. On Semiconductor benefited from a strong demand environment, particularly for power and sensing products in automotive and industrial end markets. ON's plan to exit non-core businesses and fab-lighter strategy are expected to expand gross margin in the long term.

ON Semiconductor has an expected earnings growth rate of 66.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 17.5% over the last 60 days. ON is currently trading at a 28.4% discount from its 52-week high.

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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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