For Immediate Release
Chicago, IL – April 18, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: NVIDIA Corp. NVDA, Analog Devices Inc. ADI, Broadcom Inc. AVGO, GLOBALFOUNDRIES Inc. GFS and Micron Technology Inc. MU.
Here are highlights from Thursday’s Analyst Blog:
Top 5 Chip Makers at Lucrative Valuations for a Solid Portfolio
The technology sector, of which semiconductor is a major part, suffered a bloody blow as soon as 2022 started. Soaring inflation since mid-2021 has compelled the Fed to terminate the quantitative easing program and raise the benchmark lending rate in March.
The March FOMC minutes also revealed that Fed officials almost unanimously agreed that the central bank must reduce the size of its $9 trillion balance sheet by around $95 per month starting May. Moreover, the minutes revealed that most officials have agreed that the Fed must raise the interest rate by 50 basis points in the next two FOMC’s in May and June. Consequently, the blood bath in the technology sector is visible year to date.
The Philadelphia Semiconductor Index (SOX) has tumbled 21% year to date. However, the recent market turmoil has made several U.S. chipset bigwigs attractive at the current market valuations. We have selected five semiconductor stocks with a favorable Zacks Rank, which should bolster one’s portfolio going forward. These are — NVIDIA Corp., Analog Devices Inc., Broadcom Inc., GLOBALFOUNDRIES Inc., and Micron Technology Inc..
Strong Demand for Chipsets
The use of chipsets is increasing rapidly in various industries. From consumer electronics to automakers, high-tech computers, medical devices and fighter jet missile systems, are using chipsets. However, the coronavirus-induced breakdown of the global chipset supply-chain system has created a ruckus within the economy, resulting in soaring inflation across the world.
Electronics, which aid efficiency and automation, have become ubiquitous. The chip set industry has been gaining from increased demand for electronic goods and appliances, fueled by the coronavirus-induced safety rules and precautions. The ongoing global digital wave has been driving growth of electronic components and cloud services, benefiting the semiconductor industry.
The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance, are driving demand for semiconductor packaging as well as test technologies. The growing requirement for advanced packaging is gaining traction in the semiconductor industry and is a key catalyst for the industry participants.
In January, the Biden administration reported that a global semiconductor shortage will persist until at least the second half of 2022. The report said “there is a significant, persistent mismatch in supply and demand for chips.”
Several giant chipset manufacturers in the United States, Asia and Europe are ramping up capital spending creating new facilities for chipset production to cater to massive pent-up demand. The demand for chipsets will remain strong due to the complexity of new leading-edge technologies.
Future Catalyst for Semiconductor Industry
The White House has put pressure on U.S. Congress to quickly pass legislation to provide $52 billion to help computer chip manufacturers and ease the shortage of components vital to a range of industries.
The Biden administration has expressed concerns that the United States had a 37% share of the global semiconductor and microelectronic production in 1990, which has drastically dropped to just 12%. Consequently, U.S. businesses, especially the auto and high-tech industries, are suffering from an acute shortage of chipsets owing to the breakdown of the global supply chain during the pandemic.
Our Top Picks
We have narrowed our search to five U.S. semiconductor giants that are currently trading on the dip. These stocks have positive growth potential for 2022 and have witnessed solid earnings estimate revisions within the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NVIDIA is benefiting from the coronavirus-induced work and learn-at-home wave. NVIDIA is also benefiting from strong growth in GeForce desktop and notebook GPUs, which is boosting gaming revenues. Moreover, a surge in Hyperscale demand remains a tailwind for NVIDIA’s Data Center business.
The expansion of NVIDIA GeForce NOW is expected to drive its user base. Further, the solid uptake of AI-based smart cockpit infotainment solutions is a boon. The collaboration with Daimler-owned Mercedes-Benz is expected to strengthen NVIDIA’s presence in the autonomous vehicles and other automotive electronics spaces.
Zacks Rank #1 NVDA has an expected earnings growth rate of 25% for the current year (ending January 2023). The Zacks Consensus Estimate for current-year earnings has improved 7.6% over the last 60 days. NVIDIA is currently trading at a 35.9% discount from its 52-week high.
Analog Devices has strength across communication, consumer, industrial and automotive end-markets. Further, solid demand for high-performance analog and mixed-signal solutions was a tailwind. Growing momentum across the electric vehicle space on the back of robust Battery Management System solutions remains a positive for ADI.
Further, growing power design wins are the other positives for Analog Devices. The solid momentum of the HEV platform across cabin electronics ecosystem remains a tailwind for ADI. Moreover, Analog Devices remains optimistic about the growth prospects associated with its Maxim acquisition and 5G.
Zacks Rank #2 ADI has an expected earnings growth rate of 30.5% for the current year (ending October 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 7 days. Analog Devices is currently trading at a 17.6% discount from its 52-week high.
Micron Technology is witnessing growing demand for memory chips from cloud-computing providers and acceleration in 5G cellular network adoptions. The rising mix of high-value solutions, enhancement in customer engagement and improvement in cost structure are the other growth drivers of MU.
Further, 5G adoption beyond mobile is likely to spur demand for memory and storage, particularly in Internet of Things devices and wireless infrastructure. These will act as major positives for Micron Technology going forward.
Zacks Rank #2 MU has an expected earnings growth rate of 57.4% for the current year (ending August 2022). The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the last 30 days. Micron Technology is currently trading at a 26.5% discount from its 52-week high.
GLOBALFOUNDRIES operates as a semiconductor foundry worldwide. GFS manufactures integrated circuits, which enable various electronic devices that are pervasive. The company delivers feature-rich solutions which enable its customers to develop innovative products for pervasive chips.
GLOBALFOUNDRIES manufactures a range of semiconductor devices, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontrollers, power management units, and microelectromechanical systems.
The Zacks Rank #2 GFS has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 6.1% over the last 60 days. GLOBALFOUNDRIES is currently trading at a 31% discount from its 52-week high.
Broadcom is riding on continued strength across both Semiconductor solutions and Infrastructure software verticals. In fourth-quarter fiscal 2021, Semiconductor revenues benefited from higher demand for wireless solutions and continued momentum in networking and broadband solutions.
Networking revenues of AVGO were driven by routing from service providers in the expansion of 5G networks for backhaul, metro, and call, as well as major share gains in ethernet network interface controllers within data centers. Synergies from acquisitions of CA and Symantec’s enterprise security business aided the results of Broadcom.
The Zacks Rank #2 AVGO has an expected earnings growth rate of 27.4% for the current year (ending October 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 7 days. Broadcom is currently trading at a 12.6% discount from its 52-week high.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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