Despite Recent Volatility, RBC Still Very Bullish on 4 Semiconductor Stocks

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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.