If any sector has had a solid run over the past year it is the semiconductors. While some on Wall Street are starting to become a little concerned that the run is getting tired, three major secular growth drivers remain in play that can boost earnings even higher for longer. Demand in 100G, automotive and data centers is expected to drive revenues for companies with exposure to those arenas, and that demand could be big.
A new Jefferies research report makes the case that while the sector’s run is indeed a little long in the proverbial tooth, year-over-year revenue growth is expected to accelerate through the last half of 2016, and revenue growth is now above consumption, as opposed to inline, and sentiment for the sector is clearly neutral. The analysts favor five stocks with exposure to the three hot sub-sectors, and all are rated Buy at Jefferies.
This 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. Its 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 that minimize latency in computing environments and enable the roll-out of next-generation communications infrastructure.
Many on Wall Street feel that the battle for dominance in outsourced cloud services between Amazon, Google, Microsoft and others should continue to drive growth in data center capital expenditures. The analysts 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 has reported solid earnings and guidance has been mostly positive.
The Jefferies price target for the stock is $44, and the Wall Street consensus price target is $43.30. Shares traded on Tuesday near $41.40.
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 reported an inline second quarter, but data center sales came in way below expectations. But a new partnership with Microsoft for a virtual reality, as well as a consistent shift away for reliance on chips for personal computers, keeps the stock a compelling buy.
Intel investors receive a 2.85% dividend. Jefferies has a $44 price target, while the consensus target is $37.58. The shares traded on Wednesday near $36.45.