Tuesday, May 30, 2023

Semiconductor Stocks Look Promising After Micron Q3 Earnings: 4 Picks


The semiconductor industry has been one of the rare beneficiaries of the pandemic and saw sales soaring on higher demand for consumer electronic goods. For instance, Micron Technology (NASDAQ:) MU, on Wednesday, reported stellar third-quarter fiscal 2021 results.

The memory-chip maker crushed top- and bottom-line estimates and witnessed year-over-year growth across all metrics. The company’s third-quarter results mainly benefited from increased pricing and volume across its DRAM and NAND chips.

Micron is witnessing surging demand for memory chips from cloud-computing providers, PC manufacturers and acceleration in 5G (fifth-generation) adoptions. Rising mix of high-value solutions, enhancement in customer engagement and improvement in cost structure are growth drivers as well. Also, the company has been witnessing solid demand for its memory chips from auto and industrial end markets.

Micron’s stellar Q3 results reflect an upbeat business environment for the microchip industry.

What’s Driving the Semiconductor Demand?

The pandemic has brought about a rapid shift to digitization, spurring demand for various products and devices dependent on chips for their functioning.

The global health crisis has necessitated the use of PC systems, be it for remote work, web-based learning, video conferencing, video gaming, social media, consumer entertainment and streaming or online shopping.

Meanwhile, over the years, the automotive sector has also evolved to include more electronic components in vehicles that rely on semiconductors. Markedly, following a dip in sales last year due to the pandemic, auto sales are also looking to make a comeback this year, with the IHS Markit predicting global light vehicle sales to shoot up 9%.

Additionally, robust recovery in smartphone sales is boosting demand for semiconductors. According to the latest forecast by Gartner (NYSE:), worldwide sales of smartphones will likely be up 11.4% year over year to 1.5 billion units in 2021. This suggests a sharp improvement from the 10.5% decline registered in 2020.

Long-Term Prospects Look Promising

Semiconductors are the backbone of the current-day technology-driven economy. The digitization across industries, adoption of cloud computing, as well as the integration of AI and machine learning, are likely to fuel demand for semiconductors.

The accelerated deployment of 5G technology — the next-generation wireless revolution — is anticipated to propel further growth. Apart from this, blockchain, IoT, autonomous vehicles, AR/VR and wearables are other growth prospects.

Per the latest World Semiconductor Trade Statistics data, the global semiconductor market is now predicted to improve 19.7% in 2021. The forecast for 2021 is higher than the previously-projected growth of 10.9%.

Investment Makes Sense in This Attractive Space

Considering growth prospects of the chip makers, it makes sense to invest for long-term gains.

Here we’ve picked four semiconductor stocks that are well positioned to benefit from the above-mentioned trends. Apart from having solid fundamentals, these stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our Picks

Vishay Intertechnology (NYSE:) VSH is well poised to capitalize on the growing proliferation of applications related to passive electronic-component devices and the increasing demand for sophisticated electronic-component designs.

Further, its solid thermistor offerings will likely benefit from the growing adoption of building and home automation systems, the increasing use of temperature sensors in the automotive industry, and rising applications of portable and advance healthcare equipment across the globe.

The stock currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 earnings has been revised 13.6% upward in 60 days’ time to $2.17 per share, suggesting a 136% surge from the figure reported in the year-ago quarter.

NVIDIA NVDA is benefiting from the pandemic-induced work-from-home and learn-at-home wave. The company is gaining from solid demand for GeForce desktop and notebook GPUs, which is boosting its gaming revenues. Moreover, continuing Hyperscale demand is a tailwind for this Zacks Rank #2 company’s data-center business.

Further, NVIDIA’s GPUs are rapidly gaining from the proliferation of AI. By applying its GPUs in AI models, the company is expanding its base in other untapped markets like automotive, healthcare and manufacturing.

The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $15.84 per share, having been revised 16.8% upward in the past 60 days, indicating year-over-year growth of 58.4%.

Applied Materials (NASDAQ:) AMAT is one of the world’s largest suppliers of fabrication equipment for semiconductors, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.

This Zacks Rank #2 company is riding on portfolio strength, its expanding position in memory and increasing new design wins. Additionally, growth opportunities across specialty nodes and the new nodes ramp across foundry, logic, NAND, and DRAM are estimated to aid Applied Materials in the near term.

The Zacks Consensus Estimate for fiscal 2021 earnings moved 9.2% north in 60 days’ time to $6.53 per share, indicating a year-over-year increase of 56.6%.

Microchip Technology MCHP is benefiting from increase in demand for XpressConnect family of low-latency PCI Express (PCIe) 5.0 and Compute Express Link (CXL) 1.1/2.0 retimers. New ultra-low-latency signal transmission technology is required to advance the performance in AI, ML, Advanced Driver Assisted Systems (ADAS) and other computational workload applications as the high-performance computing demands of data center workloads increases.

In addition, solid momentum of Microsemi’s solutions in Data Center, and Communications end-markets is favoring this Zacks Rank #2 company’s top-line growth.

The Zacks Consensus Estimate for fiscal 2022 earnings has moved up 5.6% in the past 60 days to $7.87 per share. The figure indicates an increase of 19.4% on a year-over-year basis.

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Micron Technology, Inc. (MU): Free Stock Analysis Report

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Applied Materials, Inc. (AMAT): Free Stock Analysis Report

Vishay Intertechnology, Inc. (VSH): Free Stock Analysis Report

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