The technology sector has been the best performing in the S&P 500 so far this year. A few standout stocks in the sector have contributed greatly to this rally. In fact, over the past 52 weeks, the likes of Advanced Micro Devices Inc. (NASDAQ: AMD) and Nvidia Corp. (NASDAQ: NVDA) have more than doubled in this time, and analysts are calling for them to go much higher.
A couple of analysts released calls this past week about where these two chip stocks stand to run. Merrill Lynch weighed in on Nvidia and Jefferies focused on AMD. 24/7 has taken a close look at each of these reports and compiled a few of the most pertinent highlights from each.
Merrill Lynch’s positive view on Nvidia is based on its underappreciated transformation from a traditional PC graphics chip vendor into a supplier into high-end gaming, enterprise graphics, cloud, accelerated computing and automotive markets. At the same time, the company has backed this up with consistent execution and a solid balance sheet with demonstrated commitment to capital returns.
Considering this, Merrill Lynch reiterated Nvidia with a Buy rating and raised its price objective to $210 from $185, implying an upside of 16.6% from the prior closing price of $180.11.
The brokerage firm sees potential upside in the second half of 2017 and into 2018, driven by the following:
- Data center capex acceleration to 31% half-over-half in the second half and 21% year over year in 2018, versus a −7% half-over-half decline in the first half.
- New independent benchmarks for upcoming Volta products reaffirm Nvidia’s competitive moat.
- Updated gaming surveys show large upgrade opportunity with premium-priced cards, among 200 million deployed gamer-base.
- Headroom for increased investor interest, with only 22% ownership among U.S. large-cap fund managers versus 28% to 35% ownership of large-cap semi peers.
Jefferies issued a Buy rating for AMD with a $19 price target, implying an upside of 38% from the prior closing price $13.74. The firm ultimately believes that the company is poised to take share in x86 MPUs. Jefferies listed a few other reasons:
- A positive AMD EPYC server MPU benchmark
- A CNBC report of a deal between Tesla and AMD for AI chips
- A Digitimes report of a delay of Intel’s 10nm Notebook MPUs
ServeTheHome, a third-party benchmarking website, recently reported benchmarks and a positive review of AMD’s EPYC 7351P single socket CPU. The site said AMD’s “mainstream offerings are competing with de-featured [Intel] Xeon Silver CPUs and absolutely obliterate what Intel is offering.” This review is consistent with checks that five hyperscale cloud players are interested in AMD’s EPYC Server MPU.
On Wednesday, CNBC reported that Tesla Inc. (NASDAQ: TSLA) is working with AMD to refine an AI chip for autonomous driving tasks in its cars, and that Tesla had received the first samples and was running tests on this chip. So while not substantiated, a partnership between Tesla and AMD would make sense, considering former chief AMD MPU architect, Jim Keller (designer of AMD’s current Zen architecture), left AMD to become Tesla’s head of Autopilot in early 2016.
Also on Wednesday morning, Digitimes reported that Intel Corp. (NASDAQ: INTC) had rescheduled the release of its 10nm Cannon Lake notebook processors to the end of 2018. Originally, Cannon Lake was expected in 2017, but most recently mid-2018. Jefferies thinks that this creates a window of opportunity for AMD to ship its “Raven Ridge” version of its Zen architecture in notebook MPUs.
The Technology Select Sector SPDR ETF (NYSEMKT: XLK) was last seen at $58.52, with a 52-week range of $45.80 to $59.17. The ETF is up about 21% year to date.
Shares of AMD ended the week at $13.30, with a consensus analyst price target of $14.23 and a 52-week trading range of $6.22 to $15.65. Year to date, the stock is up 17%, while over the past year the stock is up 120%.
Nvidia shares were trading at $179.00. The stock has a 52-week range of $63.53 to $191.20 and a consensus price target of $160.42. The stock is up 68% year to date, while over the past year it is up 185%.