Old-timers remember back before the turn of the century when semiconductor stocks often traded in a deeply cyclical nature. Back then, all eyes usually were on Intel and what new processor it was developing. That has all changed. With the automotive industry supplying huge demand, and high-function graphics chips for gaming consoles constantly being upgraded, the chip landscape is indeed a brave new world.

With 2021 right around the corner, many analysts are putting out their top picks for next year. Analyst William Stein covers the semiconductor space at Truist Securities, which is the combination of the former SunTrust Robinson Humphrey and BB&T. While he remains very positive on the top growth names, the top sector-leading cyclical and value companies are also in the mix for next year.

The following five top stocks are rated Buy at Truist Securities, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Top Growth Ideas

Monolithic Power Systems Inc. (NASDAQ: MPWR) is an off-the-radar play that was a favorite over the years at SunTrust. This small-cap pick designs, develops and markets integrated power semiconductor solutions and power delivery architectures for consumer, industrial, computing and storage, and communications market segments.

The company offers direct current (DC) to DC converter integrated circuits used to convert and control voltages of various electronic systems, such as portable electronic devices, wireless LAN access points, computers, monitors, automobiles and medical equipment.

The company also provides lighting control integrated circuits for backlighting that are used in systems, which provide the light source for LCD panels in notebook computers, monitors, car navigation systems and televisions, as well as for general illumination applications. In addition, it offers alternating current (AC)/DC offline solutions for lighting illumination applications and AC/DC power conversion solutions for various end products that plug into a wall outlet.

The Truist research report said this:

We view Monolithic Power as a unique asset in semis: As-mid cap diversified supplier in the early stages of a multi year structural growth & margin expansion, the company is in the early stages of transitioning from a semi device supplier to a broader solutions provider, boosting revenue & margins over time. Longer-term, we believe the culture of unencumbered innovation can drive 20% sales growth & high-20s earnings-per-share growth through the cycle, and great long-term investment returns

Investors receive just a 0.65% dividend. The Truist price target for the shares is $346, and the Wall Street consensus target is $350.78. The closing price on Friday was $306.95 per share.

Sector leader Nvidia Corp. (NASDAQ: NVDA) made a huge purchase last year that is proving to be a solid tailwind for the company. Though it rarely has grown through acquisitions, Nvidia bought Mellanox and paid a whopping $6.9 billion in cash in a deal that closed back in April. In what actually was somewhat of a duel, Nvidia knocked out Intel in its bid to buy the chipmaker, and the deal has helped 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.

Nvidia recently outlined a $100 billion total addressable market for its data center business by 2024, or twice the $50 billion outlined at its last investor day. The upside includes $20 billion from core Mellanox networking, $10 billion from new class of data processing units and another $10 billion from the emerging edge AI EGX computing platform.

The analyst remains very positive:

We continue to believe the companys exposure to some of the most exciting areas of growth in tech (gaming / e-sports, autonomous driving, AI, and server acceleration) will drive well above industry growth over the next few years. We believe its competitive positioning derives less from its chips, and more from its software investment, culture of innovation, and ecosystem of incumbency.

Truist has a $623 price objective, well above the $572.84 consensus figure. Nvidia stock ended Friday at $531.88, and the company is slated to report quarterly results this week.

Analog Devices Inc. (NASDAQ: ADI) stock continues to benefit from an increase in information technology and 5G spending. It is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal-processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide.

The company offers signal-processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.

Analog Devices has among the best end-market exposure, with high communications and aerospace/defense market exposure, in addition to offering investors a powerful 5G content growth story. Plus, acquisitions over the past few years like Linear Technology and Hittite Microwave should provide revenue and additional cost synergies that are still coming.

The analysts have been fans for years and said this:

Our constructive view on the company is principally owing to the company’s ongoing alignment with our industrialization of semis view. That is, the company can create significant shareholder value by transitioning its targets from safety-oriented metrics like gross processing margins and net cash, to growth-oriented metrics like sales growth, EPS growth, and free-cash-flow growth.

Analog Devices stock investors receive a 1.82% dividend. The $136 Truist price target is less than the $139.35 consensus target and the most recent close at $136.27.

Microchip Technology Inc. (NASDAQ: MCHP) is a huge Internet of Things benefactor and shares have performed very well recently. This leading provider of microcontroller, mixed-signal, analog and flash-IP solutions provides low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.

The company acquired Microsemi in June of 2018, and SunTrust believes that purchase and earlier acquisitions afford Microchip Technology ongoing mergers and acquisitions linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).

Truist said this about the company and the ongoing acquisition benefits:

We believe that Microchips sales, margins, and EPS are somewhat more levered to the cyclical stabilization / recovery that is now upon us than many peers owing to its relatively more vertically integrated manufacturing network, significant channel inventory reduction over the last seven quarters, and elevated financial leverage. We believe Microsemi and earlier acquisitions afford the company ongoing M&A-linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).

Investors receive a 1.19% dividend. Truist has set a $145 price target. The consensus target is $136.19, and Microchip Technology stock closed at $126.15 on Friday.

NXP Semiconductors N.V. (NASDAQ: NXPI) is still considered a top play for investors looking for a chip stock with Internet of Things exposure. It became the fourth largest semiconductor company in the industry after it merged with Freescale in late 2015. It is also important to note that the combined company is the number one supplier in auto semiconductors with a 14% share, as well as the number one supplier in global microcontrollers and a dominant supplier in mobile payments.

NXP continues getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile phone charging, increased cellular data consumption and even LED lighting. With shares trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition. The Truist team agrees:

We believe NXP has revenue drivers that are not broad-based macro-driven, but rather company-specific product cycles developed by an engaged management team, and margin expansion drivers that are under-valued by investors. Cyclically, we see improving trends in Automotive, Industrial/IoT, and Mobile end-markets. Idiosyncratic product cycles abound, including in automotive (Radar, display, BMS, UWB, etc.), IoT (APU/Wi-Fi), and mobile (payment & UWB). It’s these product cycles that back our thesis, and encourage a robust view on 2021.

The Truist price target is $165. The consensus target is $155.40, and NXP Semiconductors stock ended last week at $146.49.

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The demand for semiconductors in almost every segment from industrial and automotive to smartphones, gaming consoles, computers, laptops and so much more is keeping sequential growth rising year after year. Plus, the potential for mergers and acquisitions always remains at the forefront. All these stocks are great ideas for aggressive growth investors looking to have or add to positions in the space.

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