Old-timers remember back before the turn of the century when semiconductor stocks often traded in a deep 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.
One huge factor for next year could be the restocking of the supply chain, and a new Jefferies research report suggests the firm’s forecasts for the first half of 2021 could end up proving to be very conservative. Six specific reasons for the positive outlook were cited, after talking to four separate semiconductor supply chain contacts on three different continents:
1) Fourth quarter is coming in better than the third quarter.
2) Expectations are for first quarter revenues to exceed the posted in the fourth quarter.
3) Supply chain constraints are worsening, and many component lead times have been stretching materially.
4) Visibility for component vendors is stretching into the first half of 2021.
5) A number of supply chain execs want to increase inventory safety stock in the first half of next year.
6) Inventories have started to trend up and appear healthy.
Jefferies has five top stocks rated Buy for investors looking to add chip stocks to aggressive growth portfolios. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This top stock appeared to have turned the corner in a big way but sold off after earnings. Advanced Micro Devices Inc. (NYSE: AMD) is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment makers. The company’s main product lines include desktop, notebook, server, graphics processors and embedded/semi-custom chips.
AMD announced last week that Amazon Web Services has expanded its AMD-based offerings with a new cloud instance for Amazon Elastic Compute Cloud.
In November, the company announced a multiyear joint development agreement with IBM to enhance and extend the security and artificial intelligence offerings of both companies. The agreement will expand this vision by building on open-source software, open standards and open system architectures to drive confidential computing in hybrid cloud environments and support a broad range of accelerators across high-performance computing and enterprise-critical capabilities, such as virtualization and encryption.
Jefferies has a $115 price target for the shares, while the Wall Street consensus target is $87.81. Advanced Micro Devices stock closed on Friday at $91.65 a share.
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