AI-leveraged semis remain clear leaders heading into earnings season
Jul. 16, 2024 10:35 AM ET
By: Brandon Evans, SA News Editor
 SweetBunFactory
Semiconductor companies entrenched in the artificial intelligence buildout remain the most attractive stocks heading into the second quarter 2024 earnings season, according to analysts.
"We continue to believe that AI-leveraged names are still the most attractive to own heading into earnings," said Cantor Fitzgerald analysts, led by C.J. Muse, in a Tuesday note. "Additionally, we expect storage names to trade higher on continued discipline across both the NAND and HDD markets."
Memory manufacturers have also experienced strong positive earnings estimates revisions.
Top picks entering the season include Nvidia (NASDAQ: NVDA), Western Digital (NASDAQ: WDC), ASML Holding (NASDAQ: ASML), Applied Materials (NASDAQ: AMAT) and NXP Semiconductors (NASDAQ: NXPI).
Cantor boosted price targets for nine semis in their coverage universe:
- Applied Materials - $290 from $260
- Advanced Micro Devices ( AMD) - $200 from $170
- Broadcom ( AVGO) - $2,000 from $1,875
- KLA ( KLAC) - $950 from $800
- Lam Research ( LRCX) - $1,200 from $1,100
- NXP - $350 from $325
- Qualcomm ( QCOM) - $215 from $190
- Seagate Technology ( STX) - $120 from $100
- Teradyne ( TER) - $180 from $120
Cantor also finds semiconductor and semiconductor equipment companies are still in the early innings of the current recovery cycle.
"We are now five quarters into the recovery versus the average typical cycle of nine quarters, and believe this cycle will be even more elongated," Muse added.
Cantor goes long on several big names, including Nvidia, Micron Technology ( MU), Broadcom, Marvell ( MRVL), Applied Materials, ASML, NXP and Western Digital.
Deutsche Bank also expects AI-driven semiconductor stocks to perform well as second quarter earnings approach. However, the firm notes investors are becoming more particular.
"Investors remain generally optimistic on the current AI megatrend 'winners,' but we believe they are becoming more discerning as to who will continue, or begin, to deliver financial upside as uncertainty regarding the sustainability of the positive momentum lingers," said Deutsche Bank analyst Ross Seymore, in a note.
The bank's favorite Buy rated names in this space include Broadcom, Marvell, Astera Labs ( ALAB), NXP and ON Semiconductor ( ON).
Deutsche Bank is positive on memory manufacturers as well.
"Semicap shares having risen significantly, 10-20%-plus, since the start of 2Q and P/E valuations nearing or surpassing highs," said Deutsche Bank analyst Melissa Weathers. "We believe estimate revisions will be the key determinant for upside from here." |
