It’s been percolating for a while, and some of the top stocks already reflect the growth, but demand for DRAM and 3D NAND flash memory is continuing at a pace that is even astounding some on Wall Street. Flash memory is electronic (solid-state) non-volatile computer medium that can be electrically erased and reprogrammed. Dynamic random-access memory (DRAM) is a type of random-access memory that stores each bit of data in a separate capacitor within an integrated circuit.
In a new research report, Stifel thinks capital expenditures at big chip companies like Samsung is rising. The report noted:
We believe DRAM pricing has held up better than expected (and bit growth may actually be somewhat higher than previously forecasted) and Samsung is aggressively converting its capacity (both DRAM and older planar NAND capacity) to 18 nanometer. We expect the company to maintain a leadership position at this node for approximately six months before the competition can fully ramp.
This demand and strong pricing bodes well for the top semiconductor capital equipment companies. Stifel has four top stocks rated Buy in which investors can gain exposure to 3D NAND, DRAM and subsystems.
Stifel feels this semiconductor capital equipment leader has the broadest range of exposure to 3D NAND and foundry display. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.
The analysts are very positive on the stock and see Applied Materials benefiting not only the semiconductor side of the business, but also from larger, higher resolution and flexible screens on the display side of the business. The stock may still be one of the best technology values available for investors today. Some Wall Street analysts see continued FinFET capacity expansion (10nm/14nm/16nm) and transition to 3D NAND, with DRAM spending remaining strong this year.
Semiconductor and Display markets are strong. Many feel there are five top reasons to own the shares: semiconductor capital equipment strength, OLED, investments from China, valuation, and $4 in earnings per share in two years.
Applied Materials investors receive a 1.01% dividend. The Stifel price target for the stock is $42. The Wall Street consensus target price is $41.16. Shares closed last Friday at $39.79.
This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.
Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.
Despite so-so foundry and logic spending over the past year, many on Wall Street think that Lam will also continue to benefit from technology transitions such as FinFET, 3D NAND, multi patterning and advanced packaging in 2016 and beyond. Many analysts believe it is the “cleanest” semi-cap story benefiting from cyclical tailwind, SAM expansion and share gains.
Lam Research reported solid results and an impressive shipment outlook. The posted third-quarter fiscal 2017 non-GAAP earnings blew past the consensus estimate. Earnings were up 16% sequentially and 130.9% year over year.
Shareholders in Lam Research are paid a 1.3% dividend. Stifel has a $170 price target, while the consensus price objective is $136.60. The stock closed trading on Friday at $139.98 per share.