One industry that has absolutely torn it up over the past year has been semiconductors. In fact, the PHLX Semiconductor Index (SOX) is up 12.3% so far this year, and a stunning 60% over the past year. One group of stocks that also has benefited from the huge chip growth is the semiconductor capital equipment companies, which make the gear that makes the chips.
In a new research report, JPMorgan remains Overweight the semi-cap equipment group and is reasonably bullish on the landscape for the top companies to Buy going forward. The firm noted this in the report:
While we continue to expect quarter-to-quarter variance in capital spending owing to a more concentrated semiconductor manufacturing customer base, when observing spending patterns over years, data suggests since coming out of the 2008/2009 downturn, capital spending has been more stable than any other time over the past 30 years.
Four top semiconductor capital equipment companies are rated Overweight at JPMorgan.
Some on Wall Street feel 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 0.95% dividend. The JPMorgan price target for the stock is $42. The Wall Street consensus target is $41.16. Shares closed Tuesday at $42.04.
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 receive a 1.2% dividend. JPMorgan has a $155 price target, which compares with a consensus price objective of $154.55. The shares closed Tuesday at $150.54.