Revenues are one of the most important variables that investors check out before buying any stock. The semiconductor industry is currently undergoing a major transition toward AI (artificial intelligence), which is opening up new opportunities in the space of data processing, memory, communications, and discrete graphics chips.
Most companies are springing to get the first-mover advantage in these technologies in order to gain market share and boost revenues. Semiconductor companies with commodity products are looking at consolidation to boost revenue.
Investors look at revenue growth
According to WSTS (World Semiconductor Trade Statistics), the global semiconductor revenue is expected to grow 21% in 2017, after growing only 1.1% in 2016. It’s this revenue growth that made investors bullish on semiconductor stocks and sent these stocks to such record highs in 2017.
The stock price reflects investor’s sentiment about the company’s future growth potential. The outperforming stocks were the ones that reported strong revenue growth, indicating that investors were more interested in revenue growth rates.
Over the past four quarters, Micron Technology’s (MU) revenues rose 78%, while its stock price rose 90.25%. After Samsung (SSNLF), Micron was the first to start volume production of 3D NAND (negative AND), while other memory makers were still transitioning to 3D NAND.
The DRAM (dynamic random access memory) market also witnessed an increase in prices for four consecutive quarters, driving Micron’s revenues. But stock price growth is likely to slow in 2018 as memory prices cool down.
Lam Research (LRCX) also benefitted from the memory price trend because it supplies manufacturing equipment to memory makers. The company’s revenue rose 50% YoY over the past four quarters, while its stock price rose 73%.
ON Semiconductor (ON) completed the acquisition of Fairchild in calendar 4Q16. The acquisition’s synergies and strong growth in all end markets helped ON increase its revenue 56% YoY over the past four quarters. This saw ON’s stock price rise 63.9% over the past year.
Analog Devices (ADI) completed the acquisition of Linear Technology in calendar 1Q17, which helped it boost its revenues 49% over the past four quarters. This saw ON’s stock price rise 24.8% over the past year.
NVIDIA’s (NVDA) revenues rose 46% YoY over the past four quarters, as its graphics cards were widely adopted by enterprises and cloud companies for their AI (artificial intelligence) workloads. The company also benefitted from the increasing popularity of PC (personal computer) gaming and the boost in cryptocurrency, which pushed NVIDIA’s stock up 82.3% over the past year.
Next, we’ll look at the largest semiconductor companies by market capitalization.