Semiconductor stocks are contributing mightily to strength in the technology sector this year. For example, the widely followed PHLX Semiconductor Index, a cap-weighted basket of chip stocks, is higher by nearly 14% year-to-date.
While the group is already hot, analysts aren’t backing away from saying semiconductor stocks can deliver second-half upside. As CNBC reported:
Bank of America is bullish on chip stocks in the second half of 2020. The Wall Street firm says a group of semiconductor names have secular tailwinds, including artificial intelligence, 5G, cloud, and gaming. Plus, the chip stocks have strong balance sheets and solid free cash flow generation. Bank of America expects the group — which already has strong year-to-date performances — to continue its run-up.
For investors looking for some scintillating semiconductor stocks, here are a few to consider.
- Nvidia (NASDAQ:NVDA)
- Marvell Technology (NASDAQ:MRVL)
- Inphi (NASDAQ:IPHI)
- Lattice Semiconductor (NASDAQ:LSCC)
- Monolithic Power Systems (NASDAQ:MPWR)
- MACOM Technology Solutions Holdings (NASDAQ:MTSI)
- Qualcomm (NASDAQ:QCOM)
Nvidia is one of the brightest stories among large-cap semiconductor stocks this year. Up almost 78% year-to-date, Nvidia recently topped rival Intel (NASDAQ:INTC) for the title of largest domestic semiconductor company. While that move is sparking some calls that Nvidia is richly valued (it is), this remains a catalyst-rich name with multiple drivers toward more upside.
Analysts and investors have long touted Nvidia for its data center and gaming exposure. The company’s data center sales are poised to surpass the gaming unit due to the seemingly undaunted growth in the cloud computing space. Still, gaming has catalysts of its own as the hardware upgrade cycle coming in the fourth quarter could stoke demand for Nvidia chips. Those factors don’t touch on NVDA’s artificial intelligence and autonomous vehicle exposure.
“We continue to like the Nvidia story over the long-term, as we see the secular shift to data processing units within the data center, the entrance into new markets (inference, analytics, machine learning), and strategic partnerships (Mercedes-Benz, potentially others) helping to drive strong revenue growth over the coming years,” said Rosenblatt analyst Hans Mosesmann in a recent note.
He’s got a $500 price target on NVDA. The stock closed around $420 on July 20.
Marvell Technology (MRVL)
Marvell makes chips that serve as backbones for data infrastructure technology, putting the company at the epicenter of the work from home theme. This was good enough to send the shares higher by 35% this year.
Earlier this month, Mosesmann reiterated a “buy” rating on Marvell with a $42 price target, implying decent upside from the July 20 close just under $37. There could be something to that call because Marvell is levered to the 5G rollout and the data center boom through its storage business. On the data center point, Marvell’s cloud business posted a 10% jump in revenue in the first quarter.
“While the firm faced COVID-19-related headwinds in its storage business, its networking segment was bolstered by demand from data center and 5G infrastructure end markets,” according to Morningstar. “We expect the storage, networking, and processor-related sales to this end market to continue growing nicely in the coming years.”
With a market capitalization of $6 billion, Inphi is often overlooked in the semiconductor stock conversation, but while plenty of folks were sleeping on the maker of high-speed analog and mixed signal for communications gear and data centers, Inphi jumped 69% this year.
One of Inphi’s core competencies is developing chips used to address bandwidth bottlenecks in data networks while minimizing latency, which are vital niches as cloud computing presents vendors and users with new data storage challenges.
For the year ahead, analysts are forecasting Inphi earnings per share will more than double, perhaps providing some of the impetus behind Deutsche Bank recently lifting its price target on the name to $140 from $115.
Lattice Semiconductor (LSCC)
Lattice Semiconductor, a maker of field programmable gate arrays (FPGAs), is on a torrid pace, more than doubling off its March lows. FPGAs are used across myriad industries, positioning Lattice so that it’s not dependent on a single end market.
Broadly speaking, semiconductors are levered to trade wranglings with China. That much was on display last year when trade tensions between that country and the U.S. reached unprecedented heights. That potential vulnerability is relevant when evaluating Lattice because China is one of the chipmaker’s primary end markets.
Still, Lattice offers investors dual avenues for growth via the data center and 5G base station markets. In fact, the global FPGA market is expected to offer steady growth over the next several years. Some of that growth is already reflected in Lattice stock as the shares trade for more than 51x forward earnings and 10.3x sales. Those are rich multiples even by the standards of small-cap growth stocks, of which Lattice is one.
Monolithic Power Systems (MPWR)
Monolithis Power Systems is a smaller analog player among semiconductor stocks, but a potent one, as highlighted by a year-to-date gain of 40%. In plain English, Monolithic makes chips used to power communications networks, which is a hot spot in the chip arena, but the company also has exposure to the automotive, computing, consumer, and industrial markets.
A source of allure with Monolithic stock is the company’s deep product portfolio, which positions it in some of the fast-growing markets mentioned throughout this piece, including artificial intelligence and data centers.
“This includes growth trends in artificial intelligence and machine learning, which should continue to boost demand for dynamic power solutions in data centers,” notes Morningstar. “Similarly, in the industrial market, we believe the firm’s sensing solutions should allow it to benefit from the growth of robotics.”
MACOM Technology Solutions Holdings (MTSI)
With a market value of $2.51 billion, MACOM Technology Solutions Holdings is small relative to some of the other names on this list, but the chipmaker is generating big returns for investors with a 2020 gain of 42%.
MACOM chips are used in data centers, telecommunications equipment, defense, and industrial products. The telecom and defense/industrial markets combine for about two-thirds of the company’s sales. Hurt by the Covid-19 pandemic, as were other technology companies, MTSI posted a fiscal second-quarter loss.
However, MACOM said it expects fiscal third-quarter earnings of 19 cents to 23 cents a share on sales of $129 million to $133 million, with gross margins of 54% to 56%. The company delivers those results on July 29.
The stock is already trading more than 10% above the consensus price target, indicating that if MACOM tops estimates and delivers favorable guidance, analysts could be compelled to lift price forecasts on the name.
For a mature tech company, Qualcomm is proving volatile this year. From a February peak in the low $90s, the dominant maker of communications chips tumbled to $58 in March amid the Covid-19 market slump, but the stock reclaimed nearly all of those loses thanks in part to 5G enthusiasm.
The 5G rollout has been slow, but it’s gaining steam and the arrival of the Apple (NASDAQ:AAPL) 5G iPhone later this year is widely viewed as a potential catalyst for QCOM stock. Fortunately, that’s not the only 5G opportunity that’s relevant to Qualcomm investors.
QCOM chips could power half or more of 5G smartphones. That doesn’t even count the company’s footprint in the burgeoning Internet of Things market. That’s an arena where Qualcomm chips could eventually find their way into millions of connected devices, potentially paving the way for two-year (or longer) growth cycle for the company.
The company reports earnings on July 30 and some technicians are saying if it the stock rallies through $95, a significant near-term breakout could be afoot.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.