There’s not much argument that 2019 was a very good year for semiconductor makers. Among top U.S. chip stocks, the poorest performer gained a third, and the best jumped by about 165%.
This year has been a different story. Chip stocks plunged in March as the COVID-19 pandemic spread across the United States, with the shares dropping by as much as 60% for some of 2019’s big gainers. Since then, however, chip stocks have recovered again largely as a result of increased demand from businesses and individuals that now have to gear up from working from home.
Congress has done its part too, introducing two new bills, one in the House and one in the Senate, that would pump about $20 billion to $25 billion into rebuilding research and development in semiconductors and incentivize companies to build new foundries (fabs) here in the United States. Neither has passed, but both were introduced with bipartisan support, so at least they have a chance to avoid the political logjam that welcomes most new legislation.
Several catalysts for more chip demand are expected to come from the buildout of 5G networks, more products with Internet of Things capability, new video gaming devices and even new laptops with more power to make working from home easier.
The goal of the proposed legislation is to regain the U.S. lead in chipmaking that has moved offshore. The principal target is China (who else), which is investing some $150 billion in the chip industry in an effort to become the industry’s new hegemon.
We’ve looked at half a dozen chipmakers, all of which posted solid gains in 2019 and seemed to be on a similar path in 2020 until the coronavirus struck. What we were most interested in finding out was whether these stocks have already run out of headroom or if there is still upside to be captured.
Micron Technology Inc. (NASDAQ: MU) has a market cap of around $56 billion and is primarily a producer of memory products. Unlike some of the other companies we looked at, Micron owns its own fabs. In late June, analysts from five firms raised their price targets on the stock by $3 to $11 per share shortly after the company reported quarterly results. The stock gained almost 75% in 2019 but has dropped by about 6% so far in 2020.
The consensus price target on Micron stock is $64.36, and shares closed at $50.51 on Wednesday, in a 52-week range of $31.13 to $61.19. The stock is trading about 21% below its 52-week high and 27% below its consensus target. Analysts appear to believe that the stock still has a way to run.
Applied Materials Inc. (NASDAQ: AMAT) makes the equipment that chipmakers use to manufacture semiconductors. These machines are not toasters. Building a new foundry can cost a company like Micron billions of dollars, and much of that expense goes toward equipment like that made by Applied Materials. Last year the company’s stock rose by 93%, and to date in 2020, shares have added about 2.5%.
On Wednesday, Applied Materials stock closed at $62.10, in a 52-week range of $36.64 to $69.44. The consensus price target is $69.48, implying a potential upside of nearly 12%. The shares are trading about 12% below their 52-week high.
Analog Devices Inc. (NASDAQ: ADI) has a market cap of around $43 billion, but that is set to rise sharply. The company, which makes analog and embedded chips, has agreed to acquire competitor Maxim Technologies in an all-stock deal valued at more than $20 billion. Last year, Analog Devices stock added 43%, and it trades up by about 0.3% so far this year.
The stock trades in a 52-week range of $79.08 to $127.39 and closed Wednesday at $117.90. The consensus price target is $129.71, implying a potential upside of 10%. The shares are trading at 8% below their 52-week high, even following the offer for Maxim.
Intel Corp. (NASDAQ: INTC) is the world’s chipmaking giant, with a market cap of nearly $250 billion. Increased demand for personal computers and laptops for people who are being forced to work from home has given the company a recent boost. On the downside, Apple has announced that it will begin building its own processors and stop using Intel chips. Intel has stumbled in its development of 5G chips and has fallen behind both Samsung and TMSC in chip technology, but several analysts have stuck with the company. The stock posted a gain of 33% in 2019 and shares are trading down by 0.3% so far in 2020.
Intel stock closed at $59.03 on Wednesday, in a 52-week range of $43.63 to $69.29. A consensus price target of $63.19 implies a potential upside of 7%. The stock trades about 17.4% below its 52-week high.
Qualcomm Inc. (NASDAQ: QCOM) has a market cap of around $104 billion and is the industry leader in communications and networking chips. The buildout of 5G networks, combined with the federal government ban on chips from chief competitor Huawei, has boosted Qualcomm’s outlook. A recent analyst report from Morgan Stanley raised the company’s rating to Overweight with a price target of $102. Qualcomm stock added nearly 62% in 2019 and has added about 6.6% so far this year.
Shares closed at $92.55 on Wednesday, in a 52-week range of $58.00 to $96.17. The consensus price target of $93.36 implies an upside of roughly 1%. Qualcomm stock trades at about 4% below its 52-week high.
Advanced Micro Devices Inc. (NASDAQ: AMD) has a market cap of nearly $65 billion, after a share price run-up of 165% in 2019. For years, AMD has operated in the shadow of Intel, but over the past few years it has carved out space for itself in the market for graphics and video gaming processors. All the success AMD had in 2019 has carried over to this year as well, as the stock has gained 21% so far in 2020.
Shares closed at $55.34 on Wednesday, in a 52-week range of $27.43 to $59.27. With a consensus price target of $54.40, AMD stock trades about 1.7% above that. Compared to the highest price target of $70, however, it still has a potential upside of 26%, and it trades about 7% below its 52-week high.