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. In August, President Joe Biden signed the $52 billion bipartisan Chips and Science Act to help boost domestic U.S. semiconductor manufacturing. Unfortunately, it may take a while for the new investment to alleviate the ongoing supply disruptions. However, semiconductor bulls say demand from online gaming, cloud computing, artificial intelligence, 5G wireless networks and next-generation auto technology should maintain secular tail winds for semiconductor stocks in the long term. Here are eight top semiconductor stocks to buy in 2022, according to CFRA Research.
Taiwan Semiconductor Manufacturing Co. Ltd. (ticker: TSM)
Taiwan Semiconductor Manufacturing is the world’s largest pure-play semiconductor foundry. CFRA analyst Hazim Bahari says TSMC is well positioned to report a compound annual growth rate of between 15% and 20% over the next several years. He says the company has several significant growth drivers, including chip demand from 5G wireless network upgrades and high-performance computational applications. Finally, Bahari says TSMC has a dominant global market share of greater than 90% for cutting-edge chip production, including chips built on a 7-nanometer process. Bahari projects 33% revenue growth for TSMC in 2022. CFRA has a “strong buy” rating and $125 price target for TSM stock, which closed at $78.81 on Sept. 13.
Nvidia Corp. (NVDA)
Nvidia is a leader in high-end graphics and processors for personal computers, workstations and mobile devices. Analyst Angelo Zino says Nvidia has long-term growth potential in several secular growth markets. Zino is particularly bullish about Nvidia’s data center business given impressive demand for the company’s first Hopper-based graphics processor units built using TSMC’s technology. He is also optimistic about Nvidia’s Grace central processing unit products, which will likely hit the market in 2023. Zino projects 4.2% revenue growth in fiscal year 2023. CFRA has a “buy” rating and $200 price target for NVDA stock, which closed at $131.31 on Sept. 13.
Broadcom Inc. (AVGO)
Broadcom is a diversified global analog semiconductor supplier. Zino says Broadcom has an attractive valuation, especially considering the potential $8.5 billion in incremental earnings before interest, taxes, amortization and depreciation, or EBITDA, he anticipates from Broadcom’s recent $61 billion acquisition of VMware Inc. (VMW). Zino says VMware will help increase Broadcom’s exposure to high-margin software sales and will improve Broadcom’s business diversification and earnings visibility. Broadcom also pays a 3.1% dividend, a rarity among semiconductor stocks. Zino projects 4.9% revenue growth for Broadcom in fiscal 2023. CFRA has a “buy” rating and $580 price target for AVGO stock, which closed at $503.65 on Sept. 13.
ASML Holding NV (ASML)
ASML is the world’s third-largest semiconductor equipment supplier. Analyst Jun Zhang Tan says ASML essentially has a monopoly position in supplying extreme ultraviolet, or EUV, lithography technology to both logic and memory clients. Tan says ASML clients are expanding capacity and migrating to more advanced nodes, trends which will help drive ASML’s sales in the medium term. Inflationary pressures will continue to weigh on margins, but Tan says investors should instead focus on ASML’s impressive EUV system bookings growth. Tan projects 10% revenue growth for ASML in 2022. CFRA has a “strong buy” rating and $755 price target for ASML stock, which closed at $471.10 on Sept. 13.
Advanced Micro Devices Inc. (AMD)
Shares of microprocessor and graphics semiconductor stock Advanced Micro Devices are up more than 500% in the past five years, more than any other chip stock on this list. Zino says AMD’s next-generation EPYC processors will gain significant market share from data center competitors, including Intel Corp. (INTC). In addition, he anticipates positive momentum from AMD’s graphics processing products and says recent success is helping AMD improve its balance sheet and reduce risk. As AMD rolls out its next-generation processors, Zino says the company should also expand its gross margins. CFRA has a “buy” rating and $110 price target for AMD stock, which closed at $77.03 on Sept. 13.
Applied Materials Inc. (AMAT)
Applied Materials is the world’s largest wafer fabrication equipment supplier for the semiconductor industry. Analyst Keven Young says Applied Materials shares currently trade at a discounted valuation to their historical levels, but they should instead be trading at a premium given the company’s growing installed base of services customers and its higher exposure to recurring revenue. Young says he expects AMAT to be supply-constrained through the first quarter of 2023, but he says foundry and logic capacity expansions will support 12% sales growth in fiscal 2022. CFRA has a “strong buy” rating and $145 price target for AMAT stock, which closed at $90.39 on Sept. 13.
Micron Technology Inc. (MU)
Micron Technology specializes in semiconductor memory products. Zino is bullish on Micron’s product mix shift to more advanced and higher-margin products. In the longer-term, Zino says higher sales volumes, cost-per-bit reductions, an improving mix of specialty memory offerings and higher-end chips will help support profitability. He projects that revenue will drop 7% in fiscal 2023 but will grow 9.7% in fiscal 2024. Micron shares are down 42.4% this year as of market close on Sept. 13, and Zino says the company should be more aggressive with share buybacks. CFRA has a “buy” rating and $70 price target for MU stock, which closed at $53.62 on Sept. 13.
Lam Research Corp. (LRCX)
Lam Research is the world’s largest manufacturer of semiconductor etch products. Young says Lam shares trade at a discounted valuation given the company’s improving fundamentals. He anticipates elevated investments by memory customers in coming quarters and says foundry order growth will be driven by 5-nanometer and trailing technology; markets in which supply constraints are most severe. Young says momentum in etch and deposition technologies to help solve EUV implementation challenges is encouraging. He projects 11% sales growth in fiscal 2023 and 6% growth in fiscal 2024. CFRA has a “buy” rating and $594 price target for LRCX stock, which closed at $420.48 on Sept. 13.
8 best semiconductor stocks to buy:
— 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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Update 09/14/22: This story was previously published and has been updated with new information.
