The Zacks Semiconductors - Radio Frequency industry participants are suffering from a challenging demand environment that has resulted in inventory buildup. Sluggish capital spending by telecom carriers has been a headwind. Industry participants are suffering from heightened global macroeconomic uncertainties. Weakness in end-markets like automotive, industrial and infrastructure has been concerning. Nevertheless, players like Qorvo QRVO and RF Industries RFIL are benefiting from the continued adoption of WiFi 6E and WiFi 7, as well as the rapid proliferation of the edge IoT, AI data centers and automotive electrification. The growing need for faster connections, low latency and efficient battery life in wirelessly connected devices has been driving the demand for WiFi-enabled hotspots. The democratization of 5G smartphones has been a tailwind for the industry participants.

Industry Description

The Zacks Semiconductors - Radio Frequency Industry comprises companies that provide radio frequency solutions, front-end modules, low-noise amplifiers, diodes, multi-chip modules, optical components, surface acoustic wave, bulk acoustic wave technology-based antenna-plexers and film bulk acoustic resonator filters to enable smartphone devices to function more efficiently in congested RF spectrum. They serve a wide array of industries with their solutions, finding ample applications in 5G and smartphone equipment, aerospace and defense, optical networks, cellular base stations, automotive and smart home applications. Most of these companies utilize robust wafer fabrication technologies, as well as ZigBee, Bluetooth Low Energy, Thread, silicon germanium and Gallium Nitride technologies, to stay ahead of the competition.

3 Trends Influencing the Prospects of the Semiconductors - RF Industry

Accelerated 5G Deployment Acts as a Tailwind: The rapid implementation of 5G networking infrastructure and the robust adoption of cloud computing applications look promising for the wireless communication market. The coronavirus crisis-induced work-from-home wave has necessitated the need for higher bandwidth and triggered LTE advancements, which is expected to bolster the demand for RF power amplifiers. Increasing RF content in the latest 5G smartphones is a key catalyst. The growing demand for WiFi hotspots, as the number of wirelessly connected devices increases in households, is enhancing industry prospects.

Innovation Opens up Business Avenues: The rapid proliferation of IoT, wearables, drones, VR/AR devices, autonomous cars and ADAS is expected to drive the demand for RF semiconductor products beyond smartphone devices, favoring industry prospects. RF Semiconductors are setting the pace for technology modernization by digitizing aspects like connectivity, healthcare, transport and defense. The diversified utilization of RF Semiconductor products bodes well for the industry players. The evolution of semiconductor manufacturing processes from 10 nanometers (nm) to 7 nm, and even 5 nm and 3 nm technology, is anticipated to bolster the industry prospects. The rollout of bands and band combinations has led to considerable design challenges for OEM smartphone manufacturers. Industry participants are looking to address these challenges with a robust range of antenna-plexer portfolios utilizing the BAW technology.

Growing Adoption of Electric Vehicles Aids Prospects: Industry players are gaining from the increasing inclusion of their products in electric vehicles (EVs). The market for EVs is expected to expand fourfold by 2027.

Zacks Industry Rank Indicates Dim Near-Term Prospects

The Zacks Semiconductors - Radio Frequency Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #186, which places it in the bottom 24% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2025 have moved down by 35.5% since July 31, 2024.

Given the dull prospect, there are only a few stocks worth watching in the industry. Before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.

Industry Lags S&P 500 & Sector

The Zacks Semiconductors - Radio Frequency Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 41.7% over this period against the S&P 500’s return of 17.1% and the broader sector’s appreciation of 15.2%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing the Semiconductors - Radio Frequency stocks, the industry is currently trading at 15.01X, lower than the S&P 500’s 21.96X and the sector’s 25.26X.

Over the past five years, the industry has traded as high as 23.17X and as low as 7.89X, the median being 14.86X, as the charts below show.

Forward 12-Month P/E Ratio

2 Radio Frequency Stocks to Watch

RF Industries: This Zacks Rank #2 (Buy) company is benefiting from an expanding portfolio with the addition of applications like small cells, distributed antenna systems, industrial connectivity and DAC thermal cooling, apart from interconnect product offerings. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The strong portfolio, comprising higher value and higher demand products, is expected to help RF Industries achieve sales growth in 2025 and at least a 10% adjusted EBITDA margin.

RF Industries’ shares have jumped 56% in the year-to-date period. The Zacks Consensus Estimate for RFIL’s fiscal 2025 earnings has been unchanged at 21 cents per share over the past 30 days.

Price and Consensus: RFIL

Qorvo: Shares of this Zacks Rank #3 (Hold) company have moved up 3.9% year to date. The growing adoption of WIFI 7 across retail, enterprise and mobile segments, strong emphasis on RF solutions and investment in diverse growth businesses supported net sales in the CSG segment. Product orders for several large domestic and international ground-based radar systems boosted the HPA segment’s revenues. The transition from legacy mechanical systems to active electronic scanning systems is a tailwind.

QRVO has introduced highly integrated front-end solutions that simplify and accelerate the implementation of multi-mode, multi-band 4G smartphones and tablets. These new RF Fusion front-end solutions showcase the company's ability to help leading OEMs launch their next-generation flagship devices quickly. Going by dozens of 5G field trials and demonstrations it has engaged in, the acceleration in 5G deployments should be a boon for Qorvo.

The Zacks Consensus Estimate for Qorvo’s fiscal 2025 earnings has increased 1.3% to $5.35 per share over the past 30 days.

Price and Consensus: QRVO

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This article originally published on Zacks Investment Research (zacks.com).

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