Analysts recommend these semiconductor stocks.
A global chip shortage has disrupted the semiconductor industry as demand continues to outpace supply. However, analysts now expect the shortage to subside starting in the second half of the year, and plenty of semiconductor stocks are performing well despite the shortage. Consumer electronics sales are strong. Long-term trends including online gaming, cloud computing, artificial intelligence, 5G wireless networks and next-generation auto technology should generate sustainable tailwinds for semiconductor stocks for years to come. Here are eight top semiconductor stocks to buy in 2021, according to CFRA Research.
Taiwan Semiconductor Manufacturing Co. (ticker: TSM)
Taiwan Semiconductor Manufacturing is the world’s largest pure-play semiconductor foundry. Analyst Hazim Bahari says the company is perfectly positioned to benefit from a combination of booming demand from 5G networks, the Internet of Things and artificial intelligence. Shortages of high-end 5- and 7-nanometer chips have also increased Taiwan Semiconductor’s pricing power and should keep its plants operating at high capacity through at least 2022, Bahari says. In the long term, CFRA projects stable margins and double-digit annual revenue growth, including 17% growth in 2021 and 16% growth in 2022. CFRA has a “buy” rating and a $132 price target for TSM stock.
Nvidia Corp. (NVDA)
Nvidia is a leader in high-end graphics and mobile processors for personal computers, workstations and mobile electronic devices. Analyst Angelo Zino says Nvidia is outgrowing its peers, thanks in part to its data center business, which he projects will grow by at least 20% annually through fiscal 2025. He says machine learning and inference capabilities are driving enterprise data center demand. Also, Zino says Nvidia’s auto business, including its autonomous driving and AI cockpit platform, could reach a bullish inflection point within the next two years. CFRA has a “buy” rating and an $850 price target for NVDA stock.
ASML Holding NV (ASML)
ASML is the world’s third-largest semiconductor equipment supplier. Analyst Jun Zhang Tan says the chip shortage has ASML’s customers scrambling to expand capacity to meet demand, which is a bullish near-term catalyst for ASML through the end of 2021. The rollout of 5G infrastructure and high-power computer applications will support long-term demand for ASML’s extreme ultraviolet lithography machines, Tan says. While ASML shares aren’t particularly cheap, Tan says the company’s growth outlook over the next two to three years suggests room for additional upside. CFRA has a “buy” rating and a $745 price target for ASML stock.
Broadcom is a diversified global analog semiconductor supplier. Zino says Broadcom shares trade at an attractive valuation, and the company also has potential earnings and free cash flow upside. Zino is particularly bullish on Broadcom’s shift to higher-margin, recurring infrastructure software revenue. Infrastructure software is helping to diversify Broadcom’s business away from pure semiconductors. Zino anticipates an uptick in spending from cloud customers and telecom providers, which is good news for Broadcom’s near-term demand. The stock also pays a 3% dividend, a rarity within the semiconductor group. CFRA has a “strong-buy” rating and a $510 price target for AVGO stock.
Advanced Micro Devices (AMD)
Shares of microprocessor and graphics semiconductor company Advanced Micro Devices are up more than 1,700% in the past five years, but Zino says the company’s momentum and market share gains suggest that there is more upside ahead. Zino says AMD should continue to gain share from struggling Intel Corp. (INTC) in the central processing unit data center market as AMD’s next-generation processors roll out. Zino also projects gross margin expansion and balance sheet improvements as the company’s sales mix shifts to higher price, higher margin next-gen processors. CFRA has a “buy” rating and a $100 price target for AMD stock.
Micron Technology (MU)
Micron Technology specializes in semiconductor memory products. Zino is bullish on Micron’s attractive valuation and the fundamental outlook for the memory market. He says an increase in data center orders should drive dynamic random-access memory prices sharply higher. Market fundamentals have stabilized for NAND, a commonly used storage medium, and Zino says demand for Micron’s solid-state offerings will grow over time. Zino projects that earnings per share will more than double in 2021 to $5.51 and then nearly double again to $10.80 in 2022. CFRA has a “buy” rating and a $108 price target for MU stock.
NXP Semiconductors NV (NXPI)
NXP Semiconductors supplies high-performance, mixed-signal chips for the mobile payment market, the auto market and other end markets. Zino says NXP has an opportunity to gain market share in both the auto and mobile markets. He estimates that nearly a third of NXP’s auto exposure is in high-growth areas, such as electrification and advanced driver assistance systems. Zino says NXP’s improved financial situation will allow the company to return more cash to shareholders. In the first quarter, NXP raised its dividend by 50% and repurchased $1 billion in stock. CFRA has a “strong-buy” rating and a $234 price target for NXPI stock.
KLA Corp. (KLAC)
KLA provides yield monitoring and process control systems for the semiconductor industry. Zino says both yield management and process control are long-term growth opportunities, and KLA is a top player in each market. He says KLA’s margin profile is superior to its peers, and the company has an opportunity to expand operating margins further through 2022. Looking ahead, the proliferation of lower nanometer nodes will generate a growing number of yield and defect challenges, which Zino says is good news for KLA. He projects 82% EPS growth in 2021. CFRA has a “buy” rating and a $350 price target for KLA stock.
Best semiconductor stocks to buy:
— Taiwan Semiconductor Manufacturing Co. (TSM)
— Nvidia Corp. (NVDA)
— ASML Holding NV (ASML)
— Broadcom (AVGO)
— Advanced Micro Devices (AMD)
— Micron Technology (MU)
— NXP Semiconductors NV (NXPI)
— KLA Corp. (KLAC)
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8 Best Semiconductor Stocks to Buy Amid a Global Chip Shortage originally appeared on usnews.com