One thing that never changes in the dynamic world of technology, and especially in semiconductors, is the ability for change and new product innovation. Since the beginning, chip technology has evolved for faster speeds, more memory and processing capability. In a new report from Cowen, they highlight the companies that will benefit from the new breakthrough memory chips.
Recently Intel and Micron Technology announced 3D XPoint (which is pronounced 3D crosspoint) technology which is an entirely new class of nonvolatile memory that can help turn immense amounts of data into valuable information in real time. With up to 1,000 times lower latency and exponentially greater endurance than NAND, this is the chip of the future. In the report, the Cowen team say that 3D XPoint is re-branded Phase Change Memory (PCM), and is most likely to displace DRAM over time for some high-end-in-memory compute applications.
Tech aficionados may wonder why Micron Technology would give up the company’s large share of the DRAM market. The Cowen team points out that Micron is happy to trade ~25% share for 100% share, and Intel is happy to drive a proprietary solution.
Here are the companies that should benefit from this revolutionary new design.
ASML Holding NV (NASDAQ: ASML) engages in designing, manufacturing, marketing, and servicing semiconductor processing equipment used in the fabrication of integrated circuits or chips worldwide. It provides the PAS 5500 family products that comprise wafer steppers, and step and scan systems suitable for the i-line, krypton fluoride, and argon fluoride processing of wafers. This is a lithography intensive company that the Cowen team see getting a direct benefit from the new chip.
ASML investors are paid a small 0.7% dividend. The stock is rated Outperform at Cowen with a $104 price target. The Thomson/First Call consensus is at $105.32. The shares closed Monday at $93.17.
Applied Materials Inc. (NASDAQ: AMAT) reported earnings last week, and the chip capital equipment stock hit a nearly two-year low Friday after the company reported third quarter revenue that missed Wall Street’s forecast and offered lackluster fourth quarter guidance. Despite the rough patch, the company has hit the Cowen team thinks that films company like Applied Material will benefit from the new chip.
Applied Material investors are paid a solid 2.4% dividend. The stock is rated Outperform at Cowen and they have a $24 price target. The Thomson/First Call consensus target is posted at $22.16. Shares closed Monday at $17.03.
Intel Corp. (NASDAQ: INTC) is one of the technology companies that is regarded as having among the highest shareholders cash returns at approximately 8%, but has lagged high growth specialty chip stocks. The iconic chip giant had a stellar 2014 on the tailwind from continued PC and notebook sales, but this year has been a far different story. That is why this new product and a new focus at Intel beyond the PC world is positive for the company going forward. The experts that are quoted in the Cowen report think that the 3D XPoint could be primarily for In-Memory compute in servers and its launch should coincide with Intel’s Purley platform launch in 201.
Intel investors are paid a solid 3.31% dividend. The stock is rated Market Perform at Cowen with a $33 price target. The consensus is set at $33.61. Shares closed Monday at $29.08.
Lam Research Corporation (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. This is another films company that the Cowen team feels will benefit from the new chip.
Lam Research investors are paid a 1.65% dividend. The stock is rated Outperform at Cowen and they have a $98 price target. The consensus is posted at $96.36. The stock closed Monday at $74.39.
Micron Technology, Inc. (NASDAQ: MU) trades at a 3.38 price to cash flow figure. Since January the stock is down a massive 50% and over 30% since the end of June. Many on Wall Street feel at these lower levels the company is a potential takeover candidate. The collaboration with Intel on this is huge, and it would be ironic if Intel considered a purchase of Micron as they sold IM Flash Singapore to Micron, along with its share of IM Flash Technologies assets in Micron’s plant in Virginia in 2012. Micron received multiple calls after its analyst meeting with lower targets, but one upgrade actually felt like a downgrade.
Cowen rated the stocks Outperform and has a $28 price target, while the consensus is posted at $28.57. The shares closed trading on Monday at $17.22.
The bottom line is if there is widespread adoption of this new technology, Intel and Micron obviously will benefit in a big way. But the other companies will also benefit, and all are trading at levels that could give aggressive tech stocks investors extremely good entry points to establish positions.
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