Semiconductor stocks have generally been regarded as a sound investment due to the growing demand for chips in a variety of industries, including technology, automotive, and healthcare.
Furthermore, artificial intelligence (AI) is now acting as a catalyst for innovation and growth in the semiconductor industry, increasing demand for specialized hardware and promoting advancements in chip building. The semiconductor industry is expected to be worth $1.38 trillion by 2029.
Among the many strong players in this industry, Micron Technology (MU) and ASML Holdings (ASML) are stepping up their game. While Micron’s memory and storage solutions play a critical role in this digital age, ASML is a leading manufacturer of chip-making equipment.
Despite the impressive gains so far in 2024, both stocks are trading below their all-time highs, making now the ideal time for investors to buy and hold them for the long term.
Micron Technology
Founded in 1978, Micron Technology (MU) offers memory and storage solutions for various industries, including computing, mobile devices, automotive, and more.
Valued at $134 billion, Micron’s stock has gained 44.1% year-to-date, outpacing the tech-heavy Nasdaq Composite’s ($NASX) gain of 9.2%.
In the second quarter of fiscal 2024, Micron's total revenue of $5.82 billion surged 58% year on year. The company also reported an adjusted profit of $0.42 per share, as opposed to a loss of $1.91 per share in the prior year quarter.
Micron ended the quarter with $9.72 billion in cash, marketable investments, and restricted cash. Furthermore, the company generated a negative free cash flow of $29 million as capital expenditure increased to $1.25 billion in the quarter. Currently, Micron pays a dividend, yielding 0.38%, while the technology sector average yield is 1.37%. However, its low payout ratio of 5.9% indicates that dividends may increase once earnings begin to rise.
Management expects a third-quarter profit of $0.45 (plus or minus $0.07) per share, compared to a loss of $1.43 per share in Q3 2023. Furthermore, revenue is expected to rise 76% to $6.6 billion (plus or minus $200 million).
Analysts predict a profit of $0.72 per share for the fiscal year, with a potential increase to $7.78 per share by fiscal 2025. Revenue is expected to go up by 58.4% in fiscal 2024 and 41.08% in fiscal 2025, respectively.
On April 25, Micron announced that under an agreement with the Biden-Harris Administration, the company will receive $6.1 billion in CHIPS Act grants to establish manufacturing facilities in Idaho and New York. The company further stated that this grant, along with other state and local incentives, will help it achieve its goal of investing "approximately $50 billion in gross capex for U.S. domestic leading-edge memory manufacturing through 2030."
This grant also marks the first step toward Micron's long-term goal of establishing one manufacturing facility in Idaho and four in New York, with a potential investment of $125 billion over the next 20 years.
When implemented, this strategy will help Micron become one of the leading players in the semiconductor industry. Compared to the chip giant Nvidia’s forward price-to-sales ratio of 19x, Micron is trading cheap, at five times the forward 2024 sales estimate.
What Does Wall Street Say About Micron Stock?
In the analyst community, 24 out of 27 analysts covering MU stock are rating it a "strong buy," with two more calling it a “moderate buy,” and one rating it a “moderate sell.”
Overall, the stock is rated a “strong buy.” MU stock has an average target price of $129.95, implying a 5.6% upside potential from Monday’s close. Further, it has a Street-high target price of $225, which suggests the stock could gain as much as 82.9% over the next 12 months.
ASML Holdings
Founded in 1984, ASML Holdings uses cutting-edge technology to enable the production of smaller, faster, and more powerful chips that power a wide range of digital devices. The company does not manufacture chips; instead, it designs and manufactures lithography machines used in chip manufacturing.
Valued at $367 billion, ASML’s stock is up 21.2% YTD, compared to the S&P 500 Index’s ($SPX) gain of 9.5%.
ASML's position as a critical supplier to the semiconductor industry has accelerated the company's revenue growth. Revenue increased from $12.9 billion in 2018 to $29.8 billion by 2023. Similarly, its profits increased from $7.18 per share to $21.5 per share during the same period.
In the first quarter of 2024, ASML's revenue fell 26% to 5.3 billion euros ($4.91 billion). Gross margin for the quarter stood at 51%. Net income of 1.2 billion euros ($1.11 billion) dipped from 2 billion euros ($1.85 billion) in the previous year's quarter.
ASML also distributes a dividend, with a 0.82% forward yield and a payout ratio of 23.8%. In 2023, the company announced a 5.2% increase in dividends annually. Furthermore, in the first quarter, the company repurchased 400 million euros ($370.8 million) worth of shares under its 2022–2025 buyback program.
Looking ahead, management hopes that the second half of 2024 will be stronger. CEO Peter Wennink stated, “We see 2024 as a transition year with continued investments in both capacity ramp and technology, to be ready for the turn in the cycle.”
ASML expects second-quarter revenue to range between 5.7 billion and 6.2 billion euros ($5.28 billion and $5.75 billion).
Analysts predict a 0.64% drop in ASML's revenue in 2024, with earnings falling 5%. Management, on the other hand, expects total sales in 2024 to be in line with 2023 sales of $29.8 billion. However, analysts forecast that 2025 has the potential to be a record-breaking year, with revenue growing by 30.4% and earnings increasing by 54.8%.
Currently, ASML stock is valued at 29 times forward 2025 estimated earnings, compared to its five-year historical average price-to-earnings ratio of 39.6x.
What Does Wall Street Say About ASML Stock?
On Wall Street, analysts have given ASML stock a “strong buy” rating. Of the 18 analysts who cover the stock, 15 rate it as a "strong buy," and three rate it as a "hold.”
The average target price for ASML stock is $1,081.86, 17.9% higher than current levels. Furthermore, its high target price of $1,172 implies a potential 27% gain over the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.