Three Semiconductor Stocks Ready to Spark?
This week, we use AAII’s A+ Investor Stock Grades to provide insight into three semiconductor stocks. With the recent surge in demand for artificial intelligence (AI), should you consider the three semiconductor stocks of Cirrus Logic Inc. (CRUS), Himax Technologies Inc. (HIMX) and Tower Semiconductor Ltd. (TSEM)?
Semiconductor Recent News
The semiconductor industry is experiencing an unprecedented boom, driven by rapid advancements in AI and substantial investments in technology infrastructure. As AI evolves, the demand for high-performance semiconductors is surging due to their widespread use across sectors. Large technology companies are making strategic investments to drive this growth, highlighting the crucial role semiconductors play in powering the next generation of technological advancements.
For instance, Microsoft Corp. (MSFT) recently announced a $4.3 billion investment in France aimed at accelerating AI adoption, skill development and tech innovation. Nvidia Corp. (NVDA), the key leader in the semiconductor industry, also just reported record-breaking first-quarter 2025 revenue of $26 billion, highlighting its growing importance. Additionally, Amazon.com Inc.’s (AMZN) Amazon Web Services (AWS) plans to invest $15 billion in Japan by 2027 to expand its cloud computing infrastructure. Similarly, Alphabet Inc.’s (GOOGL) Google is investing over $1 billion in Germany over the next 10 years to develop new data centers and enhance its cloud infrastructure. These significant investments should positively impact the semiconductor industry for some time.
While giants like Microsoft, Nvidia, Amazon and Google lead the charge, smaller semiconductor companies are uniquely positioned to benefit from this surge. The smaller companies often specialize in innovative technologies and niche applications, allowing them to quickly adapt and meet specific industry needs. As the global demand for AI and related technologies grows, these companies are poised to supply the essential components and solutions required. This article explores three semiconductor stocks — Cirrus Logic, Himax Technologies and Tower Semiconductor — that are well-positioned to benefit from these trends.
Grading Semiconductor Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that research and real-world investment results indicate to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three semiconductor stocks — Cirrus Logic, Himax Technologies and Tower Semiconductor — based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Semiconductor Stocks
What the A+ Stock Grades Reveal
Cirrus Logic Inc. (CRUS) specializes in low-power, high-precision, mixed-signal processing solutions, with a product range that includes audio and high-performance mixed-signal (HPMS) categories. It supplies high-precision, low-latency audio components for various applications, such as smartphones, tablets, laptops, virtual and augmented reality headsets, home theater systems, automotive entertainment systems and professional audio systems. The audio products include boosted amplifiers, codecs, smart codecs, analog-to-digital converters, digital-to-analog converters and stand-alone digital signal processors. The HPMS products feature camera controllers, haptics and sensing solutions and battery and power integrated circuits (ICs). Additionally, the company’s SoundClear technology consists of tools, software and algorithms that improve the user experience and differentiate customers’ products.
Earnings estimate revisions indicate how analysts view a firm’s short-term prospects. Cirrus Logic has an Earnings Estimate Revisions Grade of A, based on a score of 82, which is very positive. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.
Cirrus Logic reported a positive earnings surprise of 93.4% for its fiscal fourth-quarter 2024 ended in March, and in the prior quarter reported a positive earnings surprise of 43.6%. Over the last month, the consensus earnings estimate for the upcoming quarter has increased from $0.554 to $0.609 per share due to six upward revisions and one downward revision. Over the last month, the consensus earnings estimate for fiscal-year 2025 has increased from $6.148 to $6.288 per share, based on five upward and three downward revisions.
A higher-quality stock possesses traits associated with upside potential and reduced downside risk. Backtesting of the Quality Grade shows that stocks with higher grades, on average, outperformed stocks with lower grades from 1998 through 2019.
The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures. To be assigned a Quality Score, though, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
Cirrus Logic has a Quality Grade of A, based on a Quality Score of 98, which is very strong. The company ranks strongly in terms of its return on assets and F-Score. The company has a return on assets of 12.8% and an F-Score of 7. The F-Score is a number between 0 and 9 that assesses the strength of a company’s financial position. It considers the profitability, leverage, liquidity and operating efficiency of a company.
Cirrus Logic has a Momentum Grade of A, based on its Momentum Score of 85. This means that the stock’s momentum has been very strong in terms of its weighted relative price strength over the last four quarters. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%. Cirrus Logic’s ranks are 89, 76, 50 and 61, sequentially from the most recent quarter.
Himax Technologies Inc. (HIMX) is a fabless semiconductor solution provider specializing in display driver ICs and timing controllers for various consumer electronics, including televisions, laptops, monitors, mobile phones, tablets, digital cameras and car navigation systems. The company operates through two segments: driver IC and non-driver products. Additionally, Himax Technologies designs and supplies controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-sized projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, video processing IC solutions and silicon intellectual properties. The company also offers digital camera solutions, including complementary metal-oxide-semiconductor image sensors and wafer-level optics, which are utilized in mobile phones, tablets, laptops, televisions, personal computer cameras, automobiles, security systems and medical devices.
The company has a Value Grade of C, based on a Value Score of 57, which is average. Higher scores indicate a more attractive stock for value investors and, thus, a better grade. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA).
Himax Technologies has a rank of 20 for shareholder yield and 26 for the price-to-free-cash-flow ratio. The company has a shareholder yield of 4.3% and a price-to-free-cash-flow ratio of 9.4. The price-to-book ratio is 1.30, which translates to a rank of 40.
The components of the Growth Composite Score consider a company’s success in growing sales on a year-over-year and long-term annualized basis and its ability to consistently generate positive cash from its core operations. Himax Technologies has a Growth Grade of B, which is strong. The company has a five-year annual sales growth rate of 5.5% and sales have increased year over year for two of the last five years. Cash from operations has been positive in the past five consecutive years.
Himax Technologies has a Momentum Grade of C, based on a Momentum Score of 55, which is average. Its weighted relative price strength ranks over the last four quarters are 82, 45, 43 and 27, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –3.3%.
The company has an Earnings Estimate Revisions Grade of B, based on a score of 75, which is positive.
Tower Semiconductor Ltd. (TSEM) operates as an independent semiconductor foundry, specializing in specialty process technologies. The company focuses on producing ICs based on customers’ design specifications, primarily using third-party designs. Tower Semiconductor manufactures semiconductors with process geometries of 0.35, 0.50, 0.55, 0.60 and 0.80 microns and above on 150-millimeter wafers; 0.35, 0.18, 0.16, 0.13 and 0.11 microns on 200-millimeter wafers; and 65-nanometer and 45-nanometer on 300-millimeter wafers. The company also offers design support and technical services. Its ICs are used in a variety of products across markets such as consumer electronics, personal computers, communications, automotive, industrial and medical devices. Tower Semiconductor has manufacturing facilities in the U.S., Israel and Japan.
Tower Semiconductor has a Quality Grade of A, based on a Quality Score of 83, which is very strong. The company’s return on assets is 17.5%, for a rank of 96. Its F-Score is 6, for a rank of 71.
Tower Semiconductor has a Momentum Grade of C, based on a Momentum Score of 58, which is average. Its weighted relative price strength ranks over the last four quarters are 80, 76, 44 and 17, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –2.5%.
Tower Semiconductor has an Earnings Estimate Revisions Grade of C, based on a score of 58, which is neutral. The company reported a positive earnings surprise of 16.8% for the first quarter of 2024, and in the prior quarter reported a positive earnings surprise of 6.2%. Over the last month, the consensus earnings estimate for the second quarter of 2024 has increased from $0.422 to $0.455 per share based on two upward and two downward revisions. Over the last month, the consensus earnings estimate for full-year 2024 has increased from $1.886 to $1.917 per share, reflecting two upward and two downward revisions.
The company’s Growth Grade is B, which is strong. Tower Semiconductor has generated positive annual cash from operations in the past five fiscal years and has a five-year annual sales growth rate of 1.8%.
Tower Semiconductor has a Value Grade of C, based on a Value Score of 57, which is average. It ranks in the 16th percentile in terms of its price-earnings ratio and in the 37th percentile in terms of its enterprise-value-to-EBITDA ratio.
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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
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