Technology

4 Semiconductor and Chip Equipment Stocks to Buy for Huge Growth

Lee Jackson

Published: June 21, 2017 10:05 am

Last Updated: January 12, 2020 10:51 am

With demand for capacity in memory growing seemingly daily, some on Wall Street have speculated that the top Chinese tech companies are pushing hard to be players in the DRAM and 3D NAND world. The reality is that while the Chinese have started to put the proverbial stake in the ground to enter this lucrative and growing arena, they are years away from competing with the top U.S. companies, and that lends them a distinct competitive advantage.

In a new research report, Harlan Sur and the semiconductor and semiconductor equipment team at JPMorgan feel that recent announcements out of China on big memory projects, while certainly a beginning of a challenge, are just that, a beginning. As a result they remain positive on a big memory chip players and the top chip equipment stocks. The report said this:

Many investors are concerned of potential supply from China coming on-line and disrupting overall industry supply/demand fundamentals. We believe such concerns are overblown as China does not have the intellectual property, especially in DRAM, where none of the 3 major DRAM suppliers are likely to share any leading-edge DRAM IP with China.

The analyst likes one chip stock for its big product head start and three chip equipment companies as they could get big orders from the Chinese building their plants. Here are the four stocks rated Overweight at JPMorgan.

Micron Technology

Micron Technology Inc. (NASDAQ: MU) is a global leader in advanced semiconductor systems. Its broad portfolio of high-performance memory technologies, including DRAM, NAND and NOR flash, is the basis for solid state drives, modules, multichip packages and other system solutions. Its memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.

Micron and Intel announced last year the availability of their 3D NAND technology, the world’s highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers and nearly every cell phone, tablet and mobile device.

One big positive for the company for 2017 and beyond is the lack of wafer supply for DRAM with limited new node migration. Also, some feel continued tightness in NAND is driven by slower industry transition to 3D, combined with an increase in enterprise SSD bit growth. Another positive are price increases across NAND flash’s three key segments, along with mix improvement, all of which bode well for the company’s NAND profitability for 2017.

The JPMorgan price target for the stock is $38, and the Wall Street consensus target is $38.52. Shares closed Tuesday at $30.83.

Applied Materials

Some on Wall Street feel this semiconductor capital equipment leader has the broadest range of exposure to 3D NAND and foundry display. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.

The analysts are very positive on the stock, and see Applied Materials benefiting not only the semiconductor side of the business, but also from larger, higher resolution and flexible screens on the display side of the business. It may still be one of the best technology values available for investors today.

Some Wall Street analysts see continued FinFET capacity expansion (10nm/14nm/16nm) and transition to 3D NAND, with DRAM spending remaining strong this year. Many feel there are five top reasons to own the shares: semiconductor capital equipment strength, OLED, investments from China, valuation, and $4 in earnings per share in two years.

Applied Materials investors receive a 0.92% dividend. JPMorgan has a $53 price target, and the consensus target is $50.30. Shares closed Tuesday at $43.36.

Lam Research

This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.

Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.

Despite so-so foundry and logic spending over the past year, many on Wall Street think that Lam will also continue to benefit from technology transitions such as FinFET, 3D NAND, multi patterning and advanced packaging in 2016 and beyond. Many analysts believe it is the “cleanest” semi-cap story benefiting from cyclical tailwind, SAM expansion and share gains.

Lam Research reported solid results and an impressive shipment outlook. The posted third-quarter fiscal 2017 non-GAAP earnings blew past the consensus estimate. Earnings were up 16% sequentially and 130.9% year over year.

Shareholders receive a 1.2% dividend. The $155 JPMorgan price target is less than the consensus price objective of $163.85. The shares closed Tuesday at $150.11.

KLA-Tencor

This has been a top pick for some time at JPMorgan. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.

It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.

The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.

JPMorgan cites the company’s strong execution, served available market (SAM) expansion and an industry leading financial model. The analyst also sees continued financial outperformance on strong market share and SAM expansion.

Shareholders receive a 2.22% dividend. The JPMorgan price objective is $120. The consensus is much lower at $100.93, and shares closed Tuesday at $97.58.

These four top picks from JPMorgan give aggressive accounts the ability to participate in the growing memory market and demand, and the growth of memory facilities that should continue to spring up in China over the next decade.