If there was any report that tech investors were dreading it was the one from Micron Technology Inc. (NASDAQ: MU), as most on Wall Street anticipated the worst. Surprisingly, the company reported reasonably good numbers this week. While the capital expenditures came in at the low end of guidance, and 3D NAND spending will be reduced, DRAM spending will be moving forward.
These positives are a sigh of relief for those in the semiconductor capital equipment space, and though nobody is pounding the table, the setup for the latter half of 2019 and into 2020 could be extremely positive.
A new Stifel research report from highlights the positives and noted this:
From a big picture perspective, there were not many major surprises from Micron’s commentary as it relates to its capex spending trends. We have previously noted the reduction in wafer starts to meet current inventory conditions, but management still projected an improvement in both DRAM and 3D NAND business trends in the second half of calendar 2019. We believe this outlook is one variable that could lead to a more favorable turn in capex spending before the end of 2019. An improved inventory outlook and demand trends would make it easier to resume new capacity additions to meet industry demand.
The Stifel team is positive on seven top companies, but here we focused on four that offer outstanding potential going forward.
This semiconductor capital equipment leader is on the Stifel Select List. 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.
Investors in Applied Materials are paid a 1.58% dividend. The Stifel price target for the shares is $53, and the Wall Street consensus target was last seen at $48.38. The stock closed Thursday’s trading up a big 4.4% to $41.33 per share.
This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.
Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.
The Stifel analysts like the company’s exposure to memory, and they feel the continued strength in the sector is a positive for the coming year. They also think fears of capital intensity are overblown and the company will outpace industry wafer fab equipment trends.
Shareholders of Lam Research are paid a 2.50% dividend. Stifel has a price target of $209, and the posted consensus price objective is $194.58. The shares closed most recently at $183.80, up almost 5% on the day.