Summertime always means trade shows and conventions for Wall Street companies, and this summer is no different. This week investors and executives from the semiconductor capital equipment industry have arrived in San Francisco for the annual SemiCon West extravaganza. As we have noted before, some big news and announcements often emerge from these industry gatherings.
In a new research report, Stifel analysts review the SemiCon West activity and note some of the companies with which they will meet. The firm remains positive overall on the industry and noted this in the report:
While there has been a lot of “noise” recently and concerns over near-term system shipments, we believe the overall tone will still be relatively positive regarding wafer fab equipment (WFE) spending for 2019 and some of the key drivers for this continued elevated spending trend (we expect a big focus and discussion on artificial intelligence at the event). We also would not be surprised at discussions and thoughts on the potential of how an escalating trade war between the U.S. and China could impact the semiconductor capital equipment industry.
For technology investors, it may be best to stay with the biggest players in the industry. Stifel covers them, and all four are rated Buy and offer some of the best entry points in months.
This semiconductor capital equipment leader has one of the broadest ranges 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 on the semiconductor side of the business but also from larger, higher resolution and flexible screens on the display side of the business.
Applied Materials remains the top pick at Stifel, and the firm believes the company will continue to outperform in the wafer fab equipment arena.
Applied Materials investors are paid a 1.77% dividend. The Stifel price target for the shares is $75, and the Wall Street consensus target is $66.41. The stock closed Wednesday at $45.20 a share.
This is another strong, large-cap play for investors. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.
It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.
The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.
Many analysts feel that KLA-Tencor is less cyclical than peers with best-in-class returns. The Orbotech purchase adds growth/diversity and sales/earnings per share accretion. Risks for the shares include industry cyclicality, relatively muted growth and limited operating leverage.
KLA-Tencor shareholders are paid a solid 2.91% dividend. Stifel has a price objective of $143, but the consensus target price is just $133.36. The shares closed at $103.26 on Wednesday.