For years, we have written about the continued growth and seemingly endless capability of the top data center companies to expand and add clients. Cloud software computing, huge amounts of video and audio streaming, massive levels of cloud storage and other factors have kept the ball rolling, and from all current indicators for the third quarter and beyond, no end is in sight.
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In a new research report, Jefferies sees absolutely no slowdown in sight for the industry, which appears to have had a very solid third quarter. The report noted this:

Third quarter 2020 leasing volume exceeded our expectations, following a near-record second quarter that we knew would be difficult to match. It is becoming apparent that accelerated digitization driven by the pandemic is augmenting data center demand. Northern Virginia continued to make up a majority of absorption (93 megawatts), likely led by large hyperscale leases, in addition to enterprise demand.

The Jefferies semiconductor analysts always have correlated the data center capacity absorption as a key indicator for data center processor chip sales, and they noted this:

US leasing volume levels remain at elevated levels following a record-high second quarter 2020, higher than the 3-yr median absorption, and is consistent with our recent channel checks, suggesting slight deceleration in data center spending following a strong second quarter. We expect semi data center revenues to decline slightly in the third quarter as data centers undergo a brief period of digestion. Though, we think the analyst forecasts for third and fourth quarter 2020, including our own, might prove conservative given the elevated levels of leasing volumes.

DataCenter Hawk is a “one-stop-shop” for IT professionals, consultants, data center operators and investors to find data center and cloud solutions. The semiconductor team feels that continued strong Datacenter Hawk numbers are very positive for four top stocks rated Buy. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

AMD

This top semiconductor company has been on fire and there are many reasons to believe the stock can go much higher. Advanced Micro Devices Inc. (NYSE: AMD) operates in two segments: 1) Computing and Graphics, and 2) Enterprise, Embedded and Semi-Custom. Its products include x86 microprocessors as an accelerated processing unit, chipsets, discrete and integrated graphics processing units (GPUs), and professional GPUs, as well as server and embedded processors, and semi-custom system-on-chip products and technology for game consoles.

The company’s market value now tops $100 billion, after its shares soared 89% this year as the coronavirus pandemic stoked demand for personal computers, gaming consoles and other devices that use the company’s chips. Second-quarter revenue rose 26% to $1.93 billion, while net income jumped more than fourfold to $157 million on the back of record notebook and server-processor sales.

AMD serves original equipment and design manufacturers, data centers, original design manufacturers, system integrators, distributors and add-in-board manufacturers through its direct sales force, independent distributors and sales representatives.

Note that, according to media sources, AMD is still in advanced talks to buy rival chipmaker Xilinx in a deal that could be valued at more than $30 billion and mark the latest big tie-up in the rapidly consolidating semiconductor industry.

Jefferies has a solid $95 price target on the shares, while the Wall Street consensus target is $80.78. Advanced Micro Devices stock closed Thursday’s trading at $83.13, above the consensus.

Inphi

This small-cap company is a strong contender in the data center arena. Inphi Corp. (NYSE: IPHI) provides high-speed analog and mixed-signal semiconductor solutions for the communications, data center and computing markets worldwide.

Inphi’s end-to-end data transport platform delivers high signal integrity at leading-edge data speeds, addressing performance and bandwidth bottlenecks in networks, from fiber to memory. Inphi has solutions to minimize latency in computing environments and enable the rollout of next-generation communications infrastructure.

The need for high-speed optical components is increasing meaningfully from cloud customers and new 5G mobile networks. Inphi is in the midst of launching disruptive solutions that could give the company a strong competitive advantage for the next two to three years.
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The Jefferies price target is $150, above the $148.31 consensus target. Inphi stock closed at $121.03 per share on Thursday.

Nvidia

This sector leader made a huge purchase last year that is proving to be a solid tailwind for the company. 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.

Nvidia recently outlined a $100 billion total addressable market for its data center business by 2024, or twice the $50 billion outlined at its last investor day. The upside includes $20 billion from core Mellanox networking, $10 billion from new class of data processing units and another $10 billion from the emerging edge AI EGX computing platform.

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 massive $680 Jefferies price objective for Nvidia stock compares to the consensus figure of $571.37 and the most recent close at $558.80 a share.

Xilinx

As noted above, it is still possible that the company is in talks to be acquired by AMD. Xilinx Inc. (NASDAQ: XLNX) is a leading fabless supplier of high-density programmable logic devices (PLDs), which are standard integrated circuits that offer significant advantages over custom logic chips, such as application-specific integrated circuits. They are used extensively in key end markets such as communications.

The company’s programmable devices comprise integrated circuits (ICs) in the form of PLDs, such as programmable system on chips and three-dimensional ICs; adaptive compute acceleration platform; software design tools to program the PLDs; software development environments and embedded platforms; targeted reference designs; printed circuit boards; and intellectual property (IP) core licenses covering Ethernet, memory controllers, Interlaken, and peripheral component interconnect express interfaces, as well as domain-specific IP in the areas of embedded, digital signal processing and connectivity, and market-specific IP cores.

Xilinx also offers development boards; development kits, including hardware, design tools, IP and reference designs that are designed to streamline and accelerate the development of domain-specific and market-specific applications; and configuration products, such as one-time programmable and in-system programmable storage devices to configure field programmable gate arrays.

Jefferies has set a $139 price target. The consensus target is $110.17, and the last Xilinx stock trade on Thursday hit the tape at $118.23.

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The semiconductor segment has had a massive run over the past couple of years, and it makes sense for aggressive investors to scale in capital now in front of not only third-quarter earnings but also an upcoming election that could toss a ton of volatility into markets.

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