Taiwan Semiconductor officially opened the sector’s earnings with a bang as it beat consensus estimates and also guided strong revenue in the fourth quarter. Specifically, the company’s Q3 YoY sales growth of 16% beat estimates by 0.5% while guidance for Q4 sales growth represents an acceleration to 23% YoY growth, which came in ahead of the consensus estimate by 1%.
The results are positive considering some of the recent bearish Wall Street reports on semiconductors that suggested lower revenue due to the chip shortage, China worries, and Covid-19 negative impact, mainly in Asia. There were similar worries in the last quarter and most companies were able to beat estimates. In this earnings preview, we review key semiconductor companies to get a pulse on what to expect.
In the analysis that follows, we give a brief overview of the semi-conductor sector and discuss key metrics that investors should be aware of heading into Q3 earnings.
Semiconductor Stocks: Top 10 EV/FWD Revenue Multiples
Below is a table of semiconductor stocks ranked by their EV/FWD sales multiples, along with their most recent YoY growth rate, gross and free cashflow (FCF) margins. Semiconductors have experienced strong demand in 2021 and the market has rewarded the outperformers with premium multiples.
Nvidia (NVDA) sports the highest multiple of the group at 20x, likely due to its dominate position with GPUs. SiTime (SITM) isn’t far behind NVDA at 18x. SITM’s premium multiple of 18x is likely a function of the firm’s strong 107% YoY growth rate as demand for its silicon timing solutions has increased in multiple different industries.
The I/O Fund recently covered Nvidia in a full length analysis on why Beth believes Nvidia will surpass Apple’s valuation over the next 5 years. In the analysis, we discuss how the A100 Ampere architecture is able to unify training and inference on a single chip, whereas in the past Nvidia’s GPUs were mainly used for training. The A100 is becoming the best-selling GPU of all time and these leaps in performance is partly why Nvidia has done so well against competitors.
Semiconductor Stocks: Top 10 Three-month Forward YoY Growth Rates
Looking forward, semi-conductors are expected to continue to grow strongly. Kulicke & Soffa (KLIC) is expected to grow over 100%, driven by increased demand for its solutions in the semiconductor, automotive and advanced display markets. Many other names are expected to grow over 50%+ in the upcoming quarter. Marvell (MRVL) is expected to grow 50%+ next quarter, but this growth is skewed by the firm’s acquisition of Inphi. Adjusting for the Inphi acquisition, MRVL’s organic growth next quarter is expected to grow 20%, which would represent an acceleration from the prior quarter organic rate of 17%.
Top 10 Weekly Share Price Movement
In the table below, we ranked the semiconductor stocks that saw the largest one week increase in their share price. Ambarella’s (AMBA) stock is one of the top performers this past week, as analyst anticipate 61% growth next quarter. AMD is also up 11% over the last week, and analyst expect the company to continue to capture market share going forward. We explore what analysts are saying about these stocks and a few others in more detail in our I/O Fund’s Preview of 7 Semiconductor Stocks Ahead of Q3 Earnings.
Top 10 Changes in sales growth estimates – last 90 days
The table below ranks the companies that have had the largest revisions to their growth outlook over the last 90 days. ADI completed its acquisition of MXIM, which largely explains the rise in forward growth expectations, and absent the acquisition management had initially guided for 17% YoY growth. AMD revenue estimates for Q3 have increased 10% over the last 90 as the company’s guide for Q3 sales came in above expectations.
Update on EV/Fwd revenue multiples:
Overall stats:
- Overall Semi-conductor forward median 5x
- Top 5 Semi-conductor forward median 18x
- Overall Semi-conductor forward average 6x
