Analysts recommend these semiconductor stocks.
A global chip shortage has disrupted the semiconductor industry in the past two years as demand continues to outpace supply. Despite the cyclical disruptions and 2022 underperformance by semi stocks, demand from online gaming, cloud computing, artificial intelligence, 5G wireless networks and next-generation auto technology should generate sustainable tail winds for semiconductor stocks for years. Beyond that, U.S. domestic chip production will see a significant tail wind in 2022 after Congress passed the $280 billion CHIPS and Science Act on July 28. The bill will include $52 billion in subsidies for domestic chip fabrication plants, widely thought to be targeted at the $20 billion chip-making plant proposed by Intel Corp. (ticker: INTC) for outside Columbus, Ohio. The semiconductor industry was split on the bill, which many saw to be targeting benefits toward manufacturers, including Intel, Texas Instruments Inc. (TXN) and Micron Technology Inc. (MU), with less support for chip designers like Advanced Micro Devices Inc. (AMD), Qualcomm Inc. (QCOM) and Nvidia Corp. (NVDA). Here are eight top semiconductor stocks to buy in 2022.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor Manufacturing is the world’s largest pure-play semiconductor foundry. CFRA equities analyst Hazim Bahari says TSM’s guidance for 10% to 20% compound annual revenue growth in the next several years is achievable. Bahari says TSM has a dominant market share in leading-edge chip production, including more than 90% share of chips that are 7 nanometers or smaller. Bahari says tight capacity will help Taiwan Semi navigate any potential cyclical downturn. He projects that more than 70% of TSM’s revenue will come from leading-edge chip production by 2023. CFRA has a “strong buy” rating and $145 price target for TSM stock, which closed at $87.63 on July 27.
Nvidia Corp. (NVDA)
Nvidia is a leader in high-end graphics and mobile processors for personal computers, workstations and mobile electronic devices. CFRA analyst Angelo Zino says Nvidia still has tremendous long-term growth potential. Nvidia has positive momentum in its data center business thanks to its Hopper-based graphics processing units and is entering the central processing unit market with its Grace chips in 2023. In addition, Zino expects a positive inflection in Nvidia’s auto revenue in coming quarters. Zino says Nvidia also has key long-term opportunities in artificial intelligence and Omniverse applications. CFRA has a “buy” rating and $200 price target for NVDA stock, which closed at $177.90 on July 27.
Broadcom Inc. (AVGO)
Broadcom is a diversified global analog semiconductor supplier. Zino says Broadcom has an attractive valuation. Its recently announced $61 billion acquisition of VMware Inc. (VMW) will significantly boost earnings, contributing more than $20 billion in annual free cash flow. In addition, Zino says VMware will boost Broadcom’s software revenue to about 49% of total revenue from only 25% prior to the deal. This software revenue has higher margin potential, improves visibility and helps Broadcom diversify outside the semiconductor business. Zino projects 25% revenue growth in fiscal 2022. CFRA has a “buy” rating and $580 price target for AVGO stock, which closed at $527.79 on July 27.
ASML Holding NV (ASML)
ASML is the world’s third-largest semiconductor equipment supplier. CFRA analyst Jun Zhang Tan says ASML’s business is in a “sweet spot” in the semi industry, and its sales are supported by both cyclical and secular tail winds. Clients are expanding capacity to meet booming demand, which should help ASML’s 2022 sales. Tan says ASML’s advanced extreme ultraviolet lithography systems have generated strong bookings numbers, which is good news for investors. In the longer term, Tan says, a positive revenue mix will help ASML steadily improve its margins and profitability. CFRA has a “strong buy” rating and $892 price target for ASML stock, which closed at $546.18 on July 27.
Advanced Micro Devices Inc. (AMD)
Shares of microprocessor and graphics semiconductor company Advanced Micro Devices are up nearly 500% in the past five years, but Zino says the company’s momentum and market share gains suggest more upside ahead. Zino says AMD’s next-generation EPYC processor will generate significant CPU data center market share gains. In addition, he says AMD’s GPU offerings have positive momentum and the company’s cash flow should help it continue to improve its balance sheet. Next-generation processors will also help boost margins and profitability. CFRA has a “buy” rating and $120 price target for AMD stock, which closed at $89.82 on July 27.
Applied Materials Inc. (AMAT)
Applied Materials is the world’s largest wafer fabrication equipment supplier for the semiconductor industry. CFRA analyst Keven Young says Applied Materials shares deserve a premium valuation for the company’s improving business fundamentals. Young says foundry and logic technology transitions and memory capacity growth are driving demand for Applied Materials technology. Meanwhile, the company’s services segment benefits from a larger installed base of customers. Young projects 12% sales growth in fiscal 2022 and 14% sales growth in fiscal 2023. CFRA has a “strong buy” rating and $177 price target for AMAT stock, which closed at $103.46 on July 27.
Micron Technology Inc. (MU)
Micron specializes in semiconductor memory products, including DRAM and NAND flash memory. Zino is bullish on Micron’s attractive valuation and the growth outlook for the memory market. He says Micron is dealing with an inventory correction, but the company’s shift toward more advanced, higher-value products is the right strategic approach. In the long term, Zino says, an improving mix of specialty DRAM and high-end NAND products will support Micron’s margins. CFRA has a “buy” rating and $70 price target for MU stock, which closed at $61.89 on July 27.
Lam Research Corp. (LRCX)
Lam Research is the world’s largest manufacturer of semiconductor etch products. Young says Lam’s business fundamentals are improving and its stock is attractively valued. He projects elevated investments by memory customers in the next several quarters. In addition, he says investments in 5-nanometer chips and trailing technology will help drive foundry orders for Lam. The company has opportunities to grow its China business as well. Lam projects 19% revenue growth in fiscal 2022 and 13% growth in fiscal 2023 as customers migrate to higher NAND memory layer counts. CFRA has a “buy” rating and $630 price target for LRCX stock, which closed at $467.66 on July 27.
8 semiconductor stocks to buy during the chip shortage:
— Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
— Nvidia Corp. (NVDA)
— Broadcom Inc. (AVGO)
— ASML Holding NV (ASML)
— Advanced Micro Devices Inc. (AMD)
— Applied Materials Inc. (AMAT)
— Micron Technology Inc. (MU)
— Lam Research Corp. (LRCX)
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8 Best Semiconductor Stocks To Buy Amid a Global Chip Shortage originally appeared on usnews.com
Update 07/28/22: This story was previously published at an earlier date and has been updated with new information.