With demand for capacity in memory growing seemingly daily, some on Wall Street have speculated that the top Chinese tech companies are pushing hard to be players in the DRAM and 3D NAND world. The reality is that while the Chinese have started to put the proverbial stake in the ground to enter this lucrative and growing arena, they are years away from competing with the top U.S. companies, and that lends them a distinct competitive advantage.
In a new research report, Harlan Sur and the semiconductor and semiconductor equipment team at JPMorgan feel that recent announcements out of China on big memory projects, while certainly a beginning of a challenge, are just that, a beginning. As a result they remain positive on a big memory chip players and the top chip equipment stocks. The report said this:
Many investors are concerned of potential supply from China coming on-line and disrupting overall industry supply/demand fundamentals. We believe such concerns are overblown as China does not have the intellectual property, especially in DRAM, where none of the 3 major DRAM suppliers are likely to share any leading-edge DRAM IP with China.
The analyst likes one chip stock for its big product head start and three chip equipment companies as they could get big orders from the Chinese building their plants. Here are the four stocks rated Overweight at JPMorgan.
Micron Technology Inc. (NASDAQ: MU) is a global leader in advanced semiconductor systems. Its broad portfolio of high-performance memory technologies, including DRAM, NAND and NOR flash, is the basis for solid state drives, modules, multichip packages and other system solutions. Its memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.
Micron and Intel announced last year the availability of their 3D NAND technology, the world’s highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers and nearly every cell phone, tablet and mobile device.
One big positive for the company for 2017 and beyond is the lack of wafer supply for DRAM with limited new node migration. Also, some feel continued tightness in NAND is driven by slower industry transition to 3D, combined with an increase in enterprise SSD bit growth. Another positive are price increases across NAND flash’s three key segments, along with mix improvement, all of which bode well for the company’s NAND profitability for 2017.
The JPMorgan price target for the stock is $38, and the Wall Street consensus target is $38.52. Shares closed Tuesday at $30.83.
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. It 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. 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 0.92% dividend. JPMorgan has a $53 price target, and the consensus target is $50.30. Shares closed Tuesday at $43.36.