Tech’s all over the place right now. And so is the chip sector. The broader market selloff has hit chip stocks where it hurts. This is especially so because the chip sector has significant international exposure.
“Quite frankly, this isn’t a place you’d want to hide in a trade war, since 90 percent of the sector’s revenues come from overseas, which is higher than any other sector,” Mark Tepper, CEO of Strategic Wealth Partners, told CNBC about chip stocks last week. No wonder the iShares PHLX Semiconductor ETF (SOXX) dropped 10% in October.
However Tepper, like many analysts, is still bullish on a select few names. Here we use TipRanks to pinpoint the best semiconductor stocks out there. All three of the chip stocks covered below share a Buy consensus and significant Street support. Plus the upside potential is looking extremely juicy following the recent selloff.
Let’s take a closer look at these three top chip stocks:
Chip Stocks to Buy: Nvidia (NVDA)
I would keep a close eye on Nvidia Corporation (NASDAQ:NVDA) right now. NVDA has brilliant exposure to key growth markets like gaming, data and autonomous driving.
Even though times are challenging, the chip stock has just received two rating upgrades. These come from Goldman Sachs and JP Morgan. And the upgrade from Goldman Sachs’ Toshiya Hari (Track Record & Ratings) isn’t just from Hold to Buy — it’s from Buy to Conviction Buy.
Here’s what Hari has to say: “We foresee a cyclical correction approaching and recommend investors to stay selective in Semis.” As a result, he downgraded both Analog Devices (NASDAQ:ADI) and Maxim Integrated Products (NASDAQ:MXIM) to Sell, and Teradyne (NYSE:TER) to Neutral.
However, NVDA stands out from the crowd. This is due to its strong balance sheet, said Hari. He called the stock his top pick in the space and sees shares surging 42% from current levels.
“We expect idiosyncratic growth drivers such as its product cycle in Gaming and potential share gains in Data Center and Professional Visualization to contribute to earnings and stock price outperformance, particularly within the context of decelerating growth in the Automotive (only 5% of NVDA revenue) and Industrial (minimal direct exposure),” Hari wrote.
And with prices down 20% in the last month, now is the perfect time to buy. Bear in mind that in the last five days shares have already rebounded 8% due to the JP Morgan upgrade. Plus the stock is up 11% year-to-date (and 600% on a three-year basis!).
A quick word of caution though: Hari predicts Q4 will be a transitional quarter, especially in gaming. He is looking for gaming revenue growth of just 5% due to inventory build.
Overall, top analysts have a cautiously optimistic Moderate Buy consensus on Nvidia. This comes with a $289 average price target (35% upside). Interested in NVDA stock? Get a free NVDA Stock Research Report.
Chip Stocks to Buy: Marvell (MRVL)
Every single top analyst that has published a rating on Marvell Technology Group Ltd. (NASDAQ:MRVL) recently is bullish on the stock. In the last three months, Marvell has racked up 15 consecutive top analyst Buy ratings. These analysts (on average) see prices rising over 55% to $27. Right now the stock is trading at a relatively inexpensive $17.59.
Analysts are cheering the stock following an upbeat investor day on October 16. “Management conveyed a message of stability and continued integration, following the uncertainty around the Cavium acquisition” explained Susquehanna’s Christopher Rolland (Track Record & Ratings).
Marvell completed its massive $6 billion acquisition of Cavium back in July. With Cavium in its pocket, Marvell can now diversify into a more general infrastructure semiconductor supplier. In other words, it can boost its declining hard disk drive business by trying to break into the server microprocessor market.
And looking to the future, Marvell illustrated several big new emerging growth opportunities- most excitingly 5G and AI. The company is aiming for 6-8% growth CAGR over the next several years- and singled out 5G as a big growth driver for the next decade.
“We believe that MRVL remains conservative on various upside drivers, such as AI and 5G, which could drive faster growth” writes MKM’s Ruben Roy (Track Record & Ratings). He calls AI a particularly ‘large potential longer-term revenue catalyst’. Indeed, MRVL said that the company has developed an AI processor which is expected to sample to a lead customer in 2019. Get the MRVL Stock Research Report.
Chip Stocks to Buy: Micron (MU)
Micron Technology, Inc. (NASDAQ:MU) is a leading manufacturer of both dynamic random-access (DRAM) memory and NAND flash memory. So you would think that would place the stock in a sticky situation. Both the DRAM and NAND memory markets have worsened in 1H 2018 due to oversupply and demand uncertainty.
However Micron is still looking like a compelling investing opportunity. “Micron is not immune to these dynamics, but we do believe the company has structurally improved and should generate a handsome amount of profits at the next trough (vs. losses in previous cycles)” writes Deutsche Bank’s Sidney Ho (Track Record & Ratings). He has a price target on the stock of $60 (49% upside potential).
MU has remained positively biased on DRAM supply which means that while NAND headwinds are visible, it’s a small % of overall sales and MU has room to gain market share given it is the lowest cost provider.
At the same time, supply and demand dynamics should be less extreme than in the past. Ho again: “We are in the camp that believes memory suppliers are more interested than ever in protecting profitability as evidenced by the capex cuts announced in the past two weeks, which we believe should lead to shorter and more muted cycles”.
Interestingly, from all analysts we can see a Moderate Buy consensus. Yet if we turn to only top-performing analysts the consensus shifts to Strong Buy. The break down is 15 Buy ratings vs just 4 Hold ratings.
But it’s the upside potential that really catches the eye: the average top analyst price target stands at $67.56. From current levels that means we are looking at sizable upside potential of over 67%. Get the MU Stock Research Report.
TipRanks.com offers exclusive insights for investors by focusing on the moves of experts: Analysts, Insiders, Bloggers, Hedge Fund Managers and more. See what the experts are saying about your stocks now at TipRanks.com. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.
