On Wednesday, Bernstein analysts highlighted the continued dominance of Artificial Intelligence (AI) as the primary demand driver in the semiconductor sector for the year 2025.
According to their research, the automotive and industrial segments could see meaningful inflections, which would benefit other sectors, albeit representing a smaller factor for their coverage. Memory markets, particularly involving Samsung (KS:005930), are deemed riskier but are believed to offer significant upside potential.
Among the key players in this space is United Microelectronics Corporation (UMC), currently trading at $6.39, with a market capitalization of $16.14 billion and a notably low P/E ratio of 10.2. InvestingPro analysis reveals the company maintains a strong financial health score, making it an interesting player in the semiconductor space.
The analysts foresee strong growth in AI earnings throughout the year, with the caveat that visibility into 2026 may impact valuations and, consequently, share prices, especially in the second half of the year. They note that the CoWoS (Chip on Wafer on Substrate) will remain a critical bottleneck for datacenter AI, and suppliers like TSMC, which are expected to expand CoWoS capacity by approximately 2.5 times year-over-year, will drive rapid earnings growth in the AI supply chain.
For investors seeking deeper insights, InvestingPro subscribers can access comprehensive analysis of semiconductor companies, including UMC's impressive dividend yield of 5.48% and its 15-year track record of consistent dividend payments.
Despite potential risks, the analysts see opportunities in the memory sector. They anticipate modest unit growth and content increase for PCs and smartphones. The report suggests that High Bandwidth (NASDAQ:BAND) Memory (HBM) will consume wafer capacity at double the rate of the entire PC market's needs, leading to a tighter supply of mainstream DRAM.
For NAND, utilization cuts starting late 2024 are expected to have a similar tightening effect on supply. The analysts predict a market inflection point in mid-2025, supported by recent stabilizing spot prices. They also expect Samsung's valuation to improve when its HBM3E is qualified by NVIDIA (NASDAQ:NVDA) in the first half of 2025.
In the context of geopolitical factors, the analysts mention that former President Trump's unpredictability and potential tariff increases could affect the cost and demand for electronic products in the United States, which accounts for approximately 20-30% of global semiconductor demand. However, they suggest that companies like TSMC could be considered a safer bet amidst these uncertainties.
Emerging technologies such as new generations of HBM, new wafer-level packaging, hybrid bonding, wafer thinning, and stacking are identified as providing multi-year growth opportunities. In terms of stock performance expectations, Samsung is seen to have around a 50% upside, albeit with uncertainty on timing, while TSMC's total return is projected to be around 25%, offering a safer investment.
MediaTek is anticipated to have an 8% EPS growth this year, potentially accelerating to 30% in 2026, with a mid- to high-teens total return and possibly more, should a re-rating occur or when the upside from its collaboration with NVIDIA in the PC and automotive sectors is realized.
According to InvestingPro, UMC's current valuation suggests it may be undervalued, with the stock trading near its 52-week low of $6.31. The company's solid current ratio of 2.19 and moderate debt levels indicate strong financial stability, making it an interesting consideration for value investors.
Discover more insights and 12 additional ProTips for UMC with an InvestingPro subscription.
In other recent news, United Microelectronics Corporation (UMC), a Taiwan-based semiconductor manufacturer, reported a robust financial performance for the third quarter of 2024. The company's revenue totaled NT$50.5 billion with a net income of NT$14.5 billion, equivalent to NT$1.16 per share. Furthermore, the gross margin was 33.8%, and capacity utilization increased to 71%.
Recent developments also include UMC's regulatory filings with the U.S. Securities and Exchange Commission (SEC). The company submitted a 6-K form, a routine disclosure that ensures the prompt conveyance of material information to the market in line with U.S. securities law. This filing, signed by UMC's Chief Financial Officer, Chitung Liu, is part of the company's commitment to regulatory compliance.
UMC also revised its annual capital expenditure budget from NT$3.3 billion to NT$3 billion. The company anticipates Q4 revenue and average selling prices to remain stable. Notably, UMC reported progress in its partnership with Intel (NASDAQ:INTC) on the 12-nanometer process, potentially moving production forward from 2027.
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