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Raymond James: 2 chip giants to buy now (and 1 to avoid)
Semiconductors are one of the essential industries of the modern world, making possible much of what we rely on or take for granted: Internet access, high-speed computers with high-speed memory, even computers. thermostats that control our air conditioning – a lot, technically, that don’t use semiconductor chips. The global semiconductor chip market was valued at over $ 513 billion in 2019, and despite the worst the pandemic can do, the chip industry has grown to $ 726 billion in 2020. It is a market. based on an almost unlimited customer base; 2.5 billion people are estimated to own at least one smartphone. That’s 1 in 3 of the total world’s population, enough to ensure that demand for semiconductor chips will never slow down. And in that context, Chris Caso, analyst at Raymond James, sees two chip giants poised to make gains this year – but investors should avoid. Let’s take a closer look. Advanced Micro Devices (AMD) The first chip inventory we’ll look at, AMD, is consistently ranked among the top 20 chipmakers – by sales – globally. The company was in fifteenth place last year, with total revenue of $ 9.76 billion. That top line was up 45% from 2019, when AMD was ranked eighteenth. AMD’s position in the industry is based on its high-quality products, including microprocessors, motherboard chipsets and graphics processors. AMD’s Ryzen Mobile 4000 chip was the first 7nm x86 processor on the market. The chip company had a strong second half of 2020, with Q3 and Q4 revenues quickly recovering from the 1H20 low and surpassing 2019 levels. Fourth quarter profits soared to 32 cents per share in the third quarter at an impressive $ 1.45 per share. For 2020 as a whole, profits were $ 2.06, up from 30 cents for 2019. The strong second half propelled full-year revenue to a company record, thanks to growing demand in the PC, gaming and data center markets. The outlook for AMD has attracted Chris Caso of Raymond James, who compares the company favorably to its competitor Intel. âWe are using hindsight from the start of the year to get involved with AMD, which we expect to be a secular winner due to what we believe to be a lasting technical advantage over Intel. We believe the stock’s pullback was driven by an improvement in sentiment that Intel will solve its manufacturing challenges, which will reverse AMD’s successes. We take the other side from this point of view, ânoted the 5-star analyst. Caso continued, âNow that Intel has embarked on in-house manufacturing, we believe it is unlikely that Intel will ever regain an advantage over transistors over AMD, and current roadmaps ensure a benefit for AMD / TSMC at least until 2024. Until then, we believe the street numbers are too low for the server and consoles, which puts our base 2022 EPS estimate of $ 2.81 12% in ahead on the street, with an upside scenario for around $ 3.00. âConsistent with this outlook, Caso launched an AMD hedge with an outperformance rating (ie Buy) and a price target of $ 100 to suggest upside potential of 23% year on year. (To see Caso’s track record, click here) Raymond James’ point of view is not an outlier; AMD had 13 positive reviews. These are partially offset by 5 takes and 1 sell, making analysts’ consensus rating a moderate buy. The stock is selling for $ 81.11, and their average price target of $ 104.44 implies a ~ 29% rise for the next 12 onths. AMD stock market analysis on TipRanks) Nvidia Corporation (NVDA) Next, Nvidia, is another giant in the chip industry. Like AMD, Nvidia is slowly rising in the rankings; Based on total sales, the company was ranked number 10 in 2019 – and number 8 in 2020. Nvidia sales last year totaled more than $ 16 billion, a gain of 53% year over year. Nvidia has found its success thanks to the combination of memory chips – which have a strong market in the data center segment – and graphics processors – which are popular among die-hard gamers and professional graphic designers. For the most recent quarter, the fourth quarter of fiscal 2021, ending December 31, Nvidia reported $ 5 billion in revenue, a corporate record, and a 61% gain from the previous year. EPS rose from $ 1.53 in the previous fourth quarter to $ 2.31 in current printing, a gain of 51%. The numbers for the whole year were solid; the top-line $ 16.68 billion was a record, and EPS, at $ 6.90, was 53% higher than the year before. Company management noted the strength of the data center segment, but also noted that Nvidia has a growing AI business. The company achieves between 5% and 10% of its total sales in the automotive market, more than half of which is related to AI, in the niche of autonomous vehicles. Raymond James’ Chris Caso also notes this in his report updating his position on NVDA. âOur appeal isn’t really new, as we’ve been positive on NVDA for some time. Rather, our appeal is to express our conviction both in the short and the long term. In the short term, we believe NVDA’s results will be more supply-driven than demand-driven given the widespread shortages – and we expect more supply as the year progressesâ¦. Our longer term belief is driven by the fact that NVDA has more shots on goal than anyone in our coverage, and their success in AI has earned them a permanent seat at the table in both hyperscale and computation. ‘business,’ Caso said. Caso shifts his strong buy outperform position and sets a price target of $ 750. At current levels, this indicates a margin of improvement of 17% over one year. The strong appreciation of NVDA’s stock over the past 12 months (115%) has pushed the stock price close to the average price target. The shares are selling for $ 614.47, with an average target of $ 670.20 suggesting a growth margin of 9%. Nonetheless, the stock holds a Strong Buy consensus rating based on 22 Buy and 4 Holds given in recent weeks. (See NVDA stock market analysis on TipRanks) Intel Corporation (INTC) The third stock we’re looking at, Intel, is the one Raymond James says he avoids. It may seem counterintuitive; Intel is the world’s largest semiconductor chip maker in terms of sales, with more than $ 77 billion in annual revenue last year and a leading market position of over 720 billions of dollars. So why is Caso advising caution here? âIntel shares have risen in recent times due to optimism that the new leadership from their new, highly capable CEO will allow them to remedy their manufacturing issues and return to their former dominance. Our underperformance rating reflects not only the risk that Intel will not meet this target, but also the pain they are likely to experience in pursuing that target in terms of capex, loss of market share and a changing landscape in data centers that will make the industry less dependent on Intel, âexplained Caso. The analyst added: âIn addition, we are concerned that demand in the PC market, on which Intel remains heavily dependent, has been pushed forward significantly due to the pandemic, and we expect a possible average reversion – which unfortunately can happen at the same time that Intel has to increase its investments. âCaso, as stated, rates INTC an underperformance (ie sell) and does not set a price target for it. Overall, the current market opinion on INTC is mixed, indicating uncertainty over its outlook. The stock has a Hold analyst consensus rating based on 12 buy, 10 take and 8 sell. Meanwhile, the price target of $ 67.68 suggests modest upside potential by almost 6%. (See INTC stock market analysis on TipRanks) To find great token ideas for stocks traded at attractive valuations, visit the best stocks to buy from TipRanks, a newly launched tool that brings all the information together. on TipRanks Stock Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before doing anything investment.