After two years of incredible performance, the chip industry and some of the high-flying stocks have hit a road bump, one that first knocked some of the wheels off back in early February. The bottom line for the sector is that capital expenditures at cloud service providers were up a stunning 65% year over year in the first quarter and increased 2% quarter over quarter, which is rare as seasonally the first quarter is typically down.
With Nvidia Corp. (NASDAQ: NVDA) set to report results on Thursday, May 10, Wall Street is anxiously awaiting those results, and with good reason. Many top analysts feel that there continues to be an opportunity for increasing average selling prices and continued mix-shift to IT hardware spend, including server CPUs and increased storage spending, as cloud data growth continues to outpace the overall market. All of this could be positive for the top chip companies.
We screened the Merrill Lynch semiconductor research universe looking for stocks rated Buy with substantial upside potential to the analysts’ assigned price targets and found three, along with Nvidia, that could explode if the company posts a big earnings print on Thursday.
Advanced Micro Devices
After years of frustrating performance, Advanced Micro Devices Inc. (NYSE: AMD) appears to have turned the corner and is a hot commodity on Wall Street. AMD is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.
Last year the company released its first major offering in five years, the Ryzen chipset, which many feel is uniquely positioned to compete with the big players like Intel and Nvidia in the $50 billion total addressable market for personal computers, gaming, artificial intelligence and servers.
The company posted huge results, and the analysts said this at the time:
First quarter sales and earnings per share of $1.65 billion and $0.11 were 5% and 17% ahead of expectations owing to strength in new accretive products (Ryzen, EPYC, and Vega), which drove gross margins 30 basis points ahead of estimates. AMD’s second quarter sales and earnings per share outlook was also ahead by 9%/ and 30% on continued strength particularly in Ryzen and EPYC, which are expected to drive a gross margins of 37% almost 1% ahead of the Street.
The Merrill Lynch price target for the shares is $15, which compares with the Wall Street consensus price objective of $14.86. The shares closed Tuesday at $11.61 apiece.
This stock has been on fire over the past year and remains a top pick across Wall Street. Broadcom Ltd. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand, and while the company was blocked in its attempt to buy Qualcomm, new chip designs are expected to drive future growth.
Broadcom investors are paid a 2.93% dividend. Merrill Lynch has a price target of $285, while the posted consensus target was last seen at $321.50. The stock closed most recently at $238.85 per share.