Technology

5 Large Semiconductor Stocks Offer High Investor Returns and Big Potential

Paul Ausick

Published: December 9, 2021 11:52 am

The current supply constraints on semiconductors for everything from iPhones to automobiles are expected to be in the history books by 2023. For investors who are looking for a longer-term investment, JPMorgan semiconductor analyst Gokul Hariharan told CNBC recently to look at two industry trends that are structural and look “really positive” over a period of three to five years.

Those two trends are high-end computing demand that companies like Apple, Tesla and Amazon are meeting with their own chip designs. The other is Chinese companies that focus on “legacy, long-tail technologies” like power management, sensors and similar markets.

For investors looking at a time horizon that is just 12 months long while still promising good returns, these longer-term plays may be interesting but not compelling.

Here’s a look at five large-cap chipmakers, with a focus on their share price and total return increases for the past 12 months and their price targets and potential share price gains over the next 12 months. One of these five firms reports quarterly results after markets close Thursday.

Nvidia

There’s not much dispute that Nvidia Corp. (NASDAQ: NVDA) is the past year’s top semiconductor stock. Its share price has risen by more than 135% over the past 12 months, its net profit margin of nearly 34% is the highest in this group and its total return to shareholders (including dividends, buybacks and debt paydown) over the past 12 months is about 145%.

The stock’s median price target is $350, implying an upside potential of 10.4% to a current price of around $317. At the high price target of $400, the upside potential is 26.2%. Fiscal 2022 (ending in January) revenues are forecast to rise by nearly 60% year over year, with adjusted earnings per share (EPS) projected to rise by 19%. Nvidia has reported an earnings surprise averaging 3.85% to the upside over the past four quarters and an average upside EPS surprise of 7.47% over the same period. Nvidia beat estimates on both measures in each quarter.

Broadcom

Based on market cap, Broadcom Inc. (NASDAQ: AVGO) trails only Nvidia in the five stocks examined here. Broadcom’s stock added 43% to its price over the past 12 months and its profit margin over that period is 22.9%, while its total return to shareholders has been about 43%. Here’s our preview of the company’s earnings report due out late Thursday.

Looking ahead, at a current price of around $586.40, the shares are trading above the median price target of $573.80. Based on a high target of $660, the upside potential is about 12.6%. For Broadcom’s 2022 fiscal year ending in January, analysts are expecting an increase of 26.4% in adjusted EPS and a revenue increase of 14.7%. Broadcom has reported an upside EPS surprise averaging 1.5% over the past four quarters and an upside revenue surprise averaging 0.7% over the same period. The company beat consensus estimates on both metrics in each of the four previous quarters.

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Advanced Micro Devices Inc. (NASDAQ: AMD) is the third-largest company on this list, with a market cap of around $183 billion. AMD has added about 53% to its share price over the course of the past 12 months, and its net profit margin over that period is 26.72%. The one-year total shareholder return is 58.4%.

As is the case with Broadcom, AMD stock’s recent price ($141.90) exceeds its median price target of $140. At the high price target of $180, the upside potential is 26.8%. For fiscal 2022 ending in January, AMD is expected to report a year-over-year revenue increase of 65.2% and EPS growth of 105%. Over the past four quarters, AMD has beaten the consensus revenue estimate by an average of 6.4% and the EPS estimate by an average of 13.69%. AMD beat estimates on both metrics in all four quarters.

Marvell

Marvell Technology Inc. (NASDAQ: MRVL) reported fiscal third-quarter results last week and received the financial world’s equivalent of rave reviews. The stock has added almost 30% since last Thursday, and the share price has soared by nearly 112% over the past 12 months. Marvell is the only stock among this group with a negative net profit margin (−10.48%), and that is likely due to recent acquisitions that promise to expand margins and reduce operating expenses. Total shareholder return over the past year is almost 118%.

The stock’s median price target is $100, implying an upside potential of 8.1% to a share price of around $92.50. At the high price target of $120, the upside potential is nearly 30%. For Marvell’s 2022 fiscal year ending in January, analysts are looking for year-over-year revenue growth of nearly 50% and adjusted EPS growth of 42.6%. Marvell has beaten the consensus revenue estimate by an average of 2.4% over the past four quarters and the EPS estimate by an average of 9.12% for the past three quarters (it met the estimate in the first fiscal quarter).

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NXP Semiconductors

NXP Semiconductors NV (NASDAQ: NXPI) is the smallest of the five companies in this review with a market cap of about  $60.3 billion. The share price is up about 38% over the past 12 months, but NXP’s net profit margin of 45.6% is the third-best on our list. Total shareholder return for the past year is 45.7%.

Based on a median price target of $241 and a share price of around $226.80, the upside potential on the stock is about 6.3%. At the high price target of $300, the upside potential is 32%. For NXP’s 2022 fiscal year ending in January, the revenue forecast calls for a year-over-year increase of 27.2% while adjusted EPS are tabbed to rise by 72.9%. Over the past four quarters, NXP has beaten the consensus revenue estimate by an average of 0.8% and the EPS estimate by an average of 4.06%. The company beat estimates on both metrics in all four quarters.