Merrill Lynch Says Take Advantage of Any Semiconductor Weakness Now

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Even though the semiconductor industry has been red-hot over the past three years, 2018 has been a different story. We have seen the market seesawe this year, and some investors have been inclined to take the big gains they have. There also have been some ancillary issues in the sector that have hit pricing, but that may be offering investors a chance to hop in now.

Between the forced and surprising resignation of Intel’s CEO and the worries of some firms across Wall Street that crypto-mining will slow dramatically, some of the best stocks have backed up recently, and a new report from Merrill Lynch says now may be the time to add shares, especially with a very positive Intel pre-announcement on Thursday.

The following four top stocks look to benefit from the dislocation, and all are rated Buy at Merrill Lynch.

AMD

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.

A recent report noted this:

We highlight the company’s drastic product mix shift in first quarter which we believe could be the start of a sustained mix shift to more premium products. Per Mercury research, a record 44% of AMD’s desktop dGPU shipments in Q1 were in graphics cards with a $300 or higher ASP. We suspect this largely captures a steep pick up in Vega GPU shipments since most of the company’s Polaris/earlier products are built into graphics cards that carry an ASP of less than $300. In the fourth quarter of 2017, shipments of $300+ graphics cards accounted for just 15% of overall AMD desktop units which implies sharp (200%+) quarter over quarter growth.

The Merrill Lynch price target for the shares is $17, and the Wall Street consensus price objective is $14.75. The shares traded early Friday at $15.75.

Intel

This semiconductor leader is working hard to focus more on Internet of Things and data center cloud spending and away from PCs. 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.

Intel announced the surprise resignation of the company’s chief executive officer on Thursday morning while also pre-announcing second-quarter results, which came in above analysts’ expectations. Despite the good results, the startling resignation hit the stock, and the Merrill Lynch feels that investors should take advantage of the selling.

Intel investors receive a 2.3% dividend. Merrill Lynch has a strong $70 price target, and the consensus price objective is $59.13. The shares were down 10% in two weeks and last seen trading at $52.70.