The stock market is starting to remind some investors of going to a theme park and riding a roller-coaster. Huge up and down days are becoming the norm, and with that kind of volatility, many investors are very wary of putting on more aggressive trades. One sector that was red-hot over the past few years has cooled some and may be offering a solid entry point for aggressive growth accounts.
The semiconductor group has been pummeled on trade and tariff worries. While there is still not a clear picture of how things will end, there remains huge demand for semiconductors, and growth within the industry is expected to continue the rest of 2019 and into next year.
A new RBC research report follows up on four top companies the analysts are very positive on, including one that is the firm’s top pick in the sector. All are rated Outperform.
Advanced Micro Devices
This top company appears to have turned the corner. Advanced Micro Devices Inc. (NYSE: 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.
Shares rose in the spring on the back of Google’s announcement concerning Stadia at this year’s game developers conference. The AMD CEO had noted that Google’s cloud gaming platform was using AMD Radeon GPUs, the announcement confirmed it and the close partnership suggests that Google ultimately may announce that it will use EPYC 2 server MPUs.
The RBC team noted this in its report:
CEO Lisa Su presented at Hot Chips and the presentation was largely in line with prior commentary surrounding the company’s focus on and commitment to optimizing GPU, CPU, and interconnect products. Importantly, during the Q&A section, Ms. Su noted that thermal is an important limit facing chip makers today. Power management is a notable limiting factor at this point and AMD is looking to create the best thermal characteristics across the chip.
RBC has a massive $44 price target for the stock, which compares with a lower Wall Street consensus target of $33.18. The shares closed Wednesday’s trading at $31.70 apiece.
Cadence Design
This company has remained very resilient and the stock has surged since the lows put in last year. Cadence Design Systems Inc. (NASDAQ: CDNS) engages in the design and development of integrated circuits and electronic devices. Its products include electronic design automation, software, emulation hardware and intellectual property, commonly referred to as verification IP and design IP.
The company’s System Design Enablement strategy helps customers develop differentiated products — from chips to boards to systems — in mobile, consumer, cloud data center, automotive, aerospace, Internet of Things, industrial and other market segments.
Cadence Design recently released the ConnX B20 DSP, which provides a faster and more power-efficient solution for the automotive and 5G communications markets, including next-generation radar, lidar, vehicle-to-everything (V2X), user equipment (UE)/infrastructure and Internet of Things applications.
The RBC price target for the shares is $80, while the consensus price objective is lower at $74.34. The stock closed trading at $69.69 per share on Wednesday.
Nvidia
This sector leader made a huge purchase in the spring. Nvidia Corp. (NASDAQ: NVDA), a company that rarely has grown through acquisitions, bought Mellanox and paid $6.9 billion in cash. In what actually was somewhat of a duel, Nvidia knocked out Intel in its bid to buy the chipmaker, and the deal will help Nvidia boost its business of making data center chips that help power cloud computing.
Mellanox’s BlueField intelligent network adapters are another version of data center co-processing acceleration. Top Wall Street analysts see the combination of Nvidia and Mellanox as a definite threat to Intel’s data center CPU dominance of workloads. This indirect competition could ultimately be a problem for Intel shareholders.
The company had another big announcement recently, and the RBC report noted this:
Nvidia announced that Minecraft will now support raytracing with the introduction of real-time DXR raytracing for Windows 10. Minecraft is being refitted with path tracing that allows for life-like lighting, reflections, and shadows. Overall, the announcement is a notable positive for the future of the RTX platform, as one of the bear-thesis items surrounding raytracing was the lack of titles. The addition of Minecraft (one of the most popular games) should help quell fears surrounding adoption from other high-quality titles in the future.
The $190 RBC price target compares with the posted consensus target last seen at $182.72. The shares closed most recently at $171.23.
Synopsys
This semiconductor design stock is another Wall Street favorite and the top pick for 2019 at RBC. Synopsys Inc. (NASDAQ: SNPS) is the largest provider of electronic design automation (EDA) software used to design, verify and layout semiconductor chips and electrical systems.
Synopsys represents roughly 28% of the $5 billion EDA market and is the market leader in digital synthesis (Galaxy product) as well as the largest EDA provider of intellectual property for common interconnects like USB. Synopsys continues making inroads into the analog space with the launch of its Galaxy Designer product.
RBC sees the company a winner as research and development spending continues to surge in 2019. With Synopsis a big player in the EDA market, this looks to be a strong tailwind for the company.
RBC has set a whopping $145 price target. The consensus target is just $133.66, and the shares closed most recently at $131.84.
Even if the bottom of the cycle isn’t 100% in, it should be close, and these four companies have done very well regardless. The RBC team is sticking with companies that they have followed and remained positive on for years, and all are solid picks for aggressive growth accounts.
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