The semiconductor industry continues to be a cornerstone of technological advancement, driving innovation across various sectors from consumer electronics to artificial intelligence (AI). As we progress through 2024, the semiconductor market is poised for substantial growth, fueled by rising demand for high-performance computing, advanced driver-assistance systems (ADAS), and data center solutions. Investors looking for significant returns often turn their attention to semiconductor stocks, which are known for their potential to deliver robust gains.
In this article, we will take a look at three semiconductor stocks: indie Semiconductor (INDI), Rambus Inc. (RMBS), and Silicon Motion Technology Corporation (SIMO). These companies exhibit strong financial health, innovative product portfolios, and promising growth trajectories. Analyst ratings further underscore their potential, with each stock rated “Strong Buy” and projected to have at least a 17% upside to their mean price targets.
1. indie Semiconductor
With a market capitalization of $1.15 billion, Indie Semiconductors (INDI), headquartered in California, offers automotive semiconductors and software solutions aimed at applications such as ADAS, in-vehicle entertainment, parking assist, vehicle detection cameras, and other innovative technologies.
Shares of indie Semiconductor have lost 34.2% over the past 52 weeks and about 24% on a year-to-date basis.
The company is expected to benefit from growth in the automotive semiconductor market, which, according to its investor presentation, is projected to grow at a CAGR of 11% between 2022 and 2027. Indie also estimated that its served addressable market could grow at a CAGR of 13% over the same period.
INDI has established trusted relationships with Tier 1 automotive suppliers, including Magna International Inc., Denso, and Continental. Its customer base encompasses major automakers such as Ford (F), General Motors (GM), Stellantis (STLA), Volkswagen (VWAGY), Hyundai (HYMTF), Nissan (NSANY), BMW (BMWYY), and Porsche (POAHY).
On June 3, indie Semiconductor’s shares jumped over 13% following a Bloomberg report indicating that the company has been exploring strategic options, including a potential sale. The automotive technology company has engaged an advisor as it fields interest from potential buyers, according to the report.
On June 27, the company announced the addition of the highly innovative iND880xx product line to its rapidly expanding vision processor portfolio, which is developed to meet the demanding specifications of Advanced Driver Assistance Systems and driver viewing use cases, such as Surround View systems and Electronic Mirrors. Indie's latest family of processors further enriches its comprehensive suite of sensing solutions for computer vision, LiDAR, radar, and ultrasound.
indie Semiconductor reported its financial results for the first quarter of fiscal 2024 on May 9. Its first-quarter revenue rose 29.4% year-over-year to $52.35 million, driven primarily by higher product revenue resulting from a change in product mix and increased product volume. This growth was fueled by continued strong demand from global customers and recent acquisitions. However, the company’s revenue fell short of the consensus by $3.70 million, and slightly missed its own guidance. Non-GAAP gross profit amounted to $26.4 million, resulting in a 50.3% gross margin, which is down from 52.2% in the same quarter last year and also below guidance.
INDI reported a first-quarter non-GAAP net loss of $17.7 million, translating to a loss of $0.10 per share, compared to a net loss of $16.3 million in the same period last year. Its bottom line also missed consensus estimates by $0.02. The primary barrier to achieving profitability lies in the company’s substantial research and development expenses, which amounted to 95% of its revenue in the first quarter. However, it’s essential to highlight that indie’s losses are driven by its investments in future product iterations, rather than a lack of market demand or pricing challenges for its current products.
Notably, Indie executed a series of acquisitions in recent years as part of its growth strategy. The most recent acquisition, completed in January 2024, involved Kinetic Technologies, which included the entire company, its staff, and intellectual property.
For the second quarter of 2024, management expects indie’s revenue to be flat to up 5% sequentially. “At the same time, we are planning on gross margin expansion to the 51 to 52 percent range from a richer product mix, flat expenses, and, in turn, a narrower operating loss on a sequential basis,” said Thomas Schiller, indie’s chief financial officer and executive vice president of strategy.
The company said it plans to return to high-growth mode in the latter half of this year, aiming to achieve EBITDA profitability by Q4 and resume its industry-leading growth trajectory into 2025 and beyond.
Analysts tracking INDI anticipate the company’s net loss to narrow year-over-year to $0.25 per share in fiscal 2024, with projections indicating a turnaround to a profit of $0.12 per share in fiscal 2025. Additionally, analysts project indie’s revenue to rise by 16.19% year-over-year to $259.29 million in fiscal 2024 and to grow by 57.58% year-over-year to $408.59 million in fiscal 2025.
In terms of valuation, the stock is currently trading at 4x forward sales, which is higher than the sector median of 2.92x.
indie Semiconductor has a unanimous “Strong Buy” rating from the seven analysts in coverage. The mean target price for INDI stock is $11.08, which is 79.6% above Friday’s closing price
2. Rambus
Valued at $6.33 billion, Rambus (RMBS) designs, develops, licenses, and markets high-speed chip-to-chip interface technology to improve the performance and cost-effectiveness of consumer electronics, computer systems, and other electronic products. The company licenses its technology to numerous other chipmakers, such as Advanced Micro Devices (AMD), Broadcom (AVGO), International Business Machines (IBM), Marvell (MRVL), Micron (MU), and Nvidia (NVDA).
Shares of Rambus have fallen 8.4% over the past 52 weeks, and are down about 14% on a year-to-date basis.
Rambus is strategically positioned to capitalize on the increasing demand for high-performance memory solutions in the AI and data center markets. Given the escalating data usage driven by factors such as cloud computing and artificial intelligence, Rambus plays a critical role in facilitating rapid and secure data connections across diverse hardware systems.
On June 27, analysts at Rosenblatt highlighted their top technology stock picks for the latter half of 2024, with Rambus included among them. Analysts emphasized that the chip interface developer’s DDR5 modules are essential components in numerous AI servers, pointing out a “misunderstanding around this point which presents an opportunity to acquire Rambus shares at an undervalued price.”
On May 13, Jefferies analyst Blayne Curtis assumed coverage of Rambus with a “Buy” rating and a price target of $75. The analyst assumed coverage of several U.S. semiconductor stocks with a bullish long-term outlook, anticipating a robust upcycle with sustained strength, emphasizing that the group is “still early in the cycle” and poised to benefit significantly from AI advancements.
Rambus released its most recent quarterly earnings report on April 29. In Q1, the company’s total revenue rose 3.6% year-over-year to $117.9 million. Its total revenue consists of product revenue, royalty revenue, and contract and other revenue. The total revenue growth was primarily fueled by a 68.5% year-over-year rise in royalty revenue to $47.5 million, which was nearly entirely offset by declines in product and contract and other revenue. Analysts had projected the company’s revenue to be $135.09 million.
Additionally, the bottom line improved from $0.03 a year ago to $0.30 for the quarter, primarily due to reduced operating expenses, although it fell short of consensus estimates by $0.14. The company also boasts a superb margin profile, with its gross profit, EBIT, and net income margins (TTM) significantly surpassing the sector’s median.
Rambus ended the quarter with $391.1 million in cash, cash equivalents, and marketable securities and no debt, positioning it favorably to reward shareholders through potential share buybacks or reinvesting capital into R&D and strategic acquisitions to fuel future growth. Notably, Rambus completed a $50 million accelerated share repurchase in the first quarter, bringing the total cash returned to stockholders over the past three years to $350 million.
Looking ahead, management said it expects royalty revenue to be between $55 million and $61 million, product revenue to be between $52 million and $58 million, and contract and other revenue to be between $17 million and $23 million in the second quarter. Also, management indicated that Rambus is strategically positioned for the DDR5 product cycle and anticipates this to fuel approximately 10% growth in product revenue for the second quarter. Overall, Rambus’ emphasis on high-performance products for the data center and AI places it in a strong position to drive sustained, profitable growth for the company in the long term.
Analysts tracking the company forecast an 8.80% year-over-year increase in earnings to $1.99 per share for fiscal 2024, along with an expected 7.27% year-over-year growth in revenue to $599.18 million.
In terms of valuation, priced at 29.59 times forward earnings, the stock trades at a premium compared to the sector median of 23.97x and its own five-year average of 20.54x. However, higher multiples are common for companies with exposure to AI, reflecting heightened investor expectations.
Each of the four analysts covering Rambus stock has a “Strong Buy” recommendation. The average target price for RMBS stock is $80.00, indicating an upside potential of over 36% from current levels.
3. Silicon Motion Technology Corporation
Based in Hong Kong, Silicon Motion Technology Corporation (SIMO) is a global leader in supplying NAND flash controllers and solid-state storage devices. It develops and markets high-performance, low-power semiconductor products for original equipment manufacturers and customers in consumer electronics, enterprise storage, and mobile communications. The company’s market cap currently stands at $2.73 billion.
Shares of SIMO have gained 12.7% over the past 52 weeks and 32.2% on a year-to-date basis.
Silicon Motion primarily operates in the NAND flash memory market, a type of non-volatile storage technology that retains data without power. This functionality makes it essential for storage in smartphones, tablets, USB flash drives, solid-state drives, memory cards, and more. As the dominant form of flash memory, NAND is highly sought after for its efficient and reliable storage of large data volumes within a compact physical footprint.
On May 6, Morgan Stanley analyst Ray Wu upgraded Silicon Motion Technology to “Overweight” from “Equal Weight,” highlighting the company’s readiness to capitalize on advancements in artificial intelligence. The firm also significantly raised its price target on the stock, increasing it to $88 from $59.
“The company raised its 2024 revenue outlook… This reflects strong orders from clients and SIMO’s introduction of a more comprehensive product portfolio,” the analyst wrote in a note. Morgan Stanley also noted that Silicon Motion’s exposure to the PC market positions the company to benefit in upcoming quarters, driven by the expansion of AI-powered PCs.
On May 2, Silicon Motion shares climbed over 2% after the company reported better-than-expected Q1 results and raised its full-year revenue guidance. In the first quarter, revenue increased by 52.5% year-over-year to $189.31 million, primarily fueled by stronger sales of SSD controllers and eMMC+UFS controllers, exceeding the Wall Street consensus by $8.97 million. Silicon Motion also reported first-quarter non-GAAP earnings per share of $0.64, beating analysts’ projections by $0.07. It is also important to note that its non-GAAP gross margin rose to 45% from 42.3% in a year ago quarter, driven by improved product mix and higher average selling prices.
“Our business remained strong in the first quarter of 2024 as demand was stronger than expected and improving ASPs continued to drive better profitability,” said Wallace Kou, President and CEO of Silicon Motion. “Our client SSD revenue increased again for the fourth consecutive quarter as end-market demand stabilized and programs with our flash maker customers continue to scale. This was a strong start to 2024, and we are confident that we have the right products and the right customers to continue to grow our business and profitability throughout this year.”
For the second quarter of 2024, management expects revenue to range between $199 million and $208 million. Also, gross margin is anticipated to further improve, ranging between 45% and 46%, while operating margin is also expected to strengthen, projected to range from 16.5% to 17.5%. Furthermore, the company raised its FY2024 revenue guidance to $800 million to $830 million, reflecting a projected year-over-year growth rate of 25-30%, up from the previous guidance of 20-25% growth.
Analysts tracking the company forecast a 53.58% year-over-year rise in EPS to $3.49 for fiscal 2024, while revenue is expected to increase 28.31% year-over-year to $820.11 million.
On the dividend side, SIMO’s annualized dividend of $2.00 translates to a forward yield of 2.47%, well above the sector’s median of 1.47%.
In terms of valuation, the stock trades at 23.23 times forward earnings, which is slightly below the sector median of 23.97x but higher than its own five-year average of 16.09x.
Overall, analysts have deemed Silicon Motion stock a “Strong Buy.” Out of the nine analysts covering the stock, eight suggest a “Strong Buy” and the remaining one advises a “Moderate Buy” rating. The average analyst price target of $94.78 indicates a potential upside of about 17% from Friday’s closing price.
On the date of publication, Oleksandr Pylypenko 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.