Technology

BofA Securities Bullish on Top Semiconductor Stocks Despite a Huge Run Higher

Lee Jackson

Published: June 3, 2020 8:43 am

Semiconductor investors have led a charmed life over the past five years. The Philadelphia Semiconductor Index (SOX) has tripled since 2015, from 566 to the current 1,883 Tuesday close. Investors that had the courage to shake off the huge decline earlier this year also have been well rewarded, as the index is up a stunning 50% from the March lows.

While this sort of rally is usually one that ends with a blow-off top and a big pullback, the analysts at BofA Securities remain positive. In a series of new reports, while they concede that the overhang from the issues with China remain, they cite the cloud, 5G, electric vehicles, automation and reshoring as positive tailwinds that can move the sector still higher.

Four large-cap leaders stand out and remain analyst favorites at BofA Securities. All are rated Buy and remain good long-term holdings for more aggressive growth accounts.

Advanced Micro Devices

This remains one of the best turnaround stories in technology history, and it is a top cloud pick. Advanced Micro Devices Inc. (NYSE: AMD) is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.

AMD’s products include x86 microprocessors as an accelerated processing unit, chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs and development services, as well as server and embedded processors, and semi-custom System-on-Chip (SoC) products, development services and technology for game consoles.

The company also provides embedded processor solutions for interactive digital signage, casino gaming and medical imaging under the AMD Opteron, AMD Athlon, AMD Geode, AMD Ryzen, AMD EPYC, AMD R-Series and G-Series processors brands; customer-specific solutions based on AMD CPU, GPU, and multimedia technologies; and semi-custom SoC products. It serves original equipment and design manufacturers, data centers, original design manufacturers, system integrators, independent distributors, online retailers and add-in-board manufacturers through its direct sales force, independent distributors and sales representatives.

The BofA Securities price objective for the shares is $65, while the Wall Street consensus price target is $53.89. Advanced Micro Devices stock closed trading on Tuesday just above the consensus level at $54.54.

Analog Devices

This stock could very well continue to benefit from an increase in information technology and upcoming 5G spending. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal-processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal-processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.

The company has among the best end-market exposure, with high communications and aerospace/defense market exposure, in addition to offering investors a powerful 5G content growth story. Plus, acquisitions over the past few years like Linear Technology and Hittite Microwave should provide revenue and additional cost synergies that are still coming.

Investors receive a 2.12% dividend. BofA Securities has a $135 price target, which is above the consensus price target of $125.32. Analog Devices stock closed Tuesday at $116.80, up almost 4% on the day.

This legacy leader in semiconductors has continued working hard to focus more on Internet of Things and data center cloud spending, and it was one of the top picks at Merrill Lynch for 2020. 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.

Intel surprised Wall Street back in April by posting much better than expected revenue. The company earned an adjusted $1.45 a share on sales of $19.8 billion in the March quarter. Analysts expected Intel earnings of $1.28 a share on sales of $18.7 billion.

On a year-over-year basis, Intel earnings rose 63% while sales climbed 23%. It was the company’s fastest earnings growth in more than seven years and the fastest sales growth in at least five years. The first-quarter results marked the second straight quarter of accelerating sales and earnings for the chipmaker.

Intel stock investors receive a 2.12% dividend. The $70 BofA Securities price objective compares to the $62.78 consensus target price and the close on Tuesday at $62.12 per share.

Nvidia

This sector leader made a huge purchase last year that is proving to be a solid tailwind for the company now. Nvidia Corp. (NASDAQ: NVDA), a company that rarely has grown through acquisitions, bought Mellanox and paid a whopping $6.9 billion in cash.

In what actually was somewhat of a duel, Nvidia knocked out Intel in its bid to buy the chipmaker, and the deal has helped Nvidia boost its business of making data center chips that help power cloud computing.

Mellanox’s BlueField intelligent network adapters are another version of data center co-processing acceleration. Top Wall Street analysts see the combination of Nvidia and Mellanox as a definite threat to Intel’s data center CPU dominance of workloads. Together, Nvidia’s computing platform and Mellanox’s interconnects power over 250 of the world’s Top 500 supercomputers and have as customers every major cloud service provider and computer maker.

The BofA Securities price target is a stunning $420. The consensus target is $383.12, and Nvidia stock closed Tuesday’s trading at $353.01 per share.

We chose to stay with the large-cap market leaders, as we see the potential for industry consolidation at some point. While the path is well paved for these top companies, the big run-ups in the stock prices seem to indicate that scaling capital in and buying smaller opening positions may be the best idea after the huge “melt-up” rally off the March lows.