Despite performance that has been absolutely off the charts over the past almost two years, one area of technology that continues to flourish is the semiconductor space, and with good reason. Industry experts say the segment is being pushed along at full speed by rapid growth in the merchant networking silicon and the optical markets. Industry leaders also feel that 100G connectivity speeds will be in full effect this year, while 400G is expected by late 2018 or most likely by 2019.
JPMorgan’s Harlan Sur and his outstanding team once again attended the annual Linley Cloud Hardware Conference in California this year. In a new research report, they noted that while challenges always exist within the sector, the path forward is very positive, and many of the companies that the analysts have rated as Overweight look to benefit from the data center market innovation.
Here are five companies that really stand out now.
This stock has been on a roll over the past year and is expected to trade even higher. Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Its extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other.
Applications for the company’s products in these end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.
The analysts are also very positive on the company benefiting on the ramp to both the Tomahawk and the Tomahawk 2 and routing silicon Jericho and Qumran. Facebook is expected to use the company’s Tomahawk switching chip in the Voyager project. The Kalia, Qumran-AX and Qumran-UX families of products are complementary to Broadcom’s high-capacity StrataDNX Jericho and Qumran-MX SoCs. Together they provide the industry’s most comprehensive end-to-end portfolio of switching solutions across the carrier, data center and enterprise markets.
Shareholders are paid a 2% dividend. The JPMorgan price target for the stock is $230, and the Wall Street consensus target IS 216.23. The shares closed most recently at $205.34.
This stock has been a Wall Street favorite for some time and could be another great addition to tech portfolios. Cavium Inc. (NASDAQ: CAVM) designs, develops and markets semiconductor processors for intelligent and secure networks in the United States and internationally.
It offers integrated semiconductor processors for wired and wireless networking, communications, storage, cloud, wireless, security, video and connected home and office applications. The company’s products also include a suite of embedded security protocols that enable unified threat management, secure connectivity, network perimeter protection and deep packet inspection.
Arista networks recently announced a new programmable switch, the 7160 Series, which uses the new XPliant XP80 chipset from Cavium. Cavium purchased Xpliant in 2014, and the purchase has paid off handsomely.
JPMorgan has a $75 price target for the shares. The posted consensus target is $72.38. The shares closed trading on Thursday at $65.08.
This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.
Intel posted fiscal fourth-quarter earnings that were flat compared to the previous year, as well as revenue that was up 1%. But both the top and bottom lines exceeded the consensus analysts’ estimates posted at Thomson Reuters.
Intel investors are paid a solid 2.93% dividend. The $44 JPMorgan price target compares with the consensus target of $40.09. The stock closed Thursday at $35.46 a share.
This company also is a strong contender in the data center arena. Inphi Corp. (NYSE: IPHI) provides high-speed analog and mixed signal semiconductor solutions for the communications, data center and computing markets worldwide. The company’s end-to-end data transport platform delivers high signal integrity at leading-edge data speeds, addressing performance and bandwidth bottlenecks in networks, from fiber to memory. Inphi has solutions to minimize latency in computing environments and enable the roll-out of next-generation communications infrastructure.
Many on Wall Street feel that cloud data center customers are more likely to embrace Inphi’s exciting 100G products like the PAM-4 solutions, ColorZ and others. The company is expected to roll out 200G this year and 400G soon after.
JPMorgan has set its price target at $59, above the consensus target of $56.21 and the most recent closing share price of $48.71.
This is a company that has been the subject of takeover chatter over the past year. MACOM Technology Holdings Corp. (NASDAQ: MTSI) supplies key enabling technologies for the cloud connected apps economy and modern networked battlefield. Recognized for its broad catalog portfolio of technologies and products, MACOM provides high-performance analog RF, microwave, millimeter wave and photonic semiconductor products for diverse applications, ranging from high-speed optical, satellite, wired and wireless networks to military and civil radar systems.
Many on Wall Street feel the company’s acquisition of Applied Micro was a very solid addition to existing product lines. The analysts noted in the report:
MACOM has demonstrated working 100G PAM4 optical links (with the use of MACOM Linear Drivers and TIAs) which would be suitable for 400G in 4x100G configuration.
The JPMorgan price target is set a $54. The consensus target is $53.73, and the stock closed Thursday at $45.44 a share.
While the trend for cloud-related semiconductor suppliers is clearly higher, and the forward possibilities are tremendous, it may make sense to edge capital in at intervals and see if we don’t get a pullback in the markets.