Technology

5 Top Semiconductor and Equipment Stock Picks for the Rest of 2017

Lee Jackson

Published: September 22, 2017 8:35 am

Last Updated: January 12, 2020 7:55 am

Needless to say, the semiconductor and semiconductor capital equipment industries have been on fire this year. With demand from the new iPhones, Internet of Things (IoT) infrastructure build-outs, automotive (which is being pushed by autonomous driving) and a host of additional positives, the road forward looks bright.

The one issue for many investors is the huge run up in the prices of many of the top stocks, which makes the risk-reward far less enticing as compared with this time last year. We screened the JPMorgan research database for chip and chip equipment stocks that were rated Buy but still had solid upside to the firm’s price target. All are rated Overweight.

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 company reported second-quarter earnings that were better than the Wall Street consensus estimate, and revenues rose more than 44% from the same period of last year and was right in line with the analysts’ view. Looking ahead, Applied Materials forecast third-quarter earnings per share and revenue that are well ahead of the consensus forecast.

Applied Materials shareholders are paid a small 0.85% dividend. The JPMorgan price target for the stock is $56, and the Wall Street consensus target is $55.50. The shares closed Thursday’s trading at $47.15 apiece.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers, and the Internet of Things is a big part of the shift. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.

The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

Earlier this year, Intel announced the purchase of Mobileye for more than $15 billion. The Israel sensor company gives the chip giant a leg up in the autonomous car competition, and it also adds many other capabilities. This is expected to be a big IoT segment going forward.

This is so huge that Intel expects the computing total addressable market (TAM) in autos to significantly outpace vehicle unit TAM. In fact, by Intel’s estimates, autonomous cars will demand 10-times increase in compute throughput, a 1,000-times increase in pixels and 1,000-times increase in storage between 2017 and 2030. In dollar terms, that translates to in-car TAM (systems, data and services) of $70 billion and another $40 billion of TAM for autonomous driving-related data center spending.

Intel investors are paid a solid 2.93% dividend. JPMorgan has set its price target at $45, while the consensus price objective was last seen at $39.99. The stock closed on Thursday at $37.20 a share.

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.

The company beat Wall Street’s June-quarter sales and earnings targets and guided analysts higher for the September quarter.

Shareholders of Lam Research are paid a 1.07% dividend. The $190 JPMorgan price target compares with a posted consensus price objective of $191.47. The shares closed most recently at $172.28.

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.

Here are three big positives for Micron for the rest of 2017 and beyond:

1. Lack of wafer supply for DRAM with limited new node migration.
2. Continued tightness in NAND, which the analysts feel is driven by slower industry transition to 3D combined with an increase in enterprise SSD bit growth.
3. 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 has set its price target at $40, also below the consensus target of $44.46. Its shares were last seen trading at $35.91.

Qorvo

This is the company that was formed after the merger of RF Micro Devices and Triquint Semiconductor. Qorvo Inc. (NASDAQ: QRVO) is a leading provider of core technologies and RF solutions for mobile, infrastructure and aerospace/defense applications. Qorvo has more than 7,000 global employees dedicated to delivering solutions for everything that connects the world.

The company has among the industry’s broadest portfolio of products and core technologies. The Merrill Lynch analysts are convinced that the higher RF content in new smartphones should offset quarterly unit volatility. They also think strategic mergers and acquisitions could help diversify the company away from mobile dependence and add longer life business cycle products.

The JPMorgan price target is a stout $85. The consensus price target for the shares is $76.04. The stock closed Thursday at $70.61 per share.

Here are five top companies for investors to consider that have a long history of success and innovation. Most importantly, their stocks still offer reasonable upside to the JPMorgan price targets. With earnings right around the corner, and the market toppy, it makes sense to perhaps buy partial positions, and have very tight stops in place.