Goldman Sachs Has 5 Red-Hot Semiconductor Stocks to Buy for 2021

Technology

Published: December 22, 2020 8:14 am

After an incredibly wild and wooly year for investors, many across Wall Street are cautiously optimistic for 2021. Most equity strategists at the major banks and brokerage firms we cover see the country returning to a more normal state of affairs. The rollout of the COVID-19 vaccines and a reopening of the economy could very well jump-start growth. One sector that is a very solid idea for aggressive growth stock investors is the semiconductors.
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A new Goldman Sachs research report includes the firm’s semiconductor picks for 2021. The analysts noted this when discussing the firm’s very positive stance:

We remain bullish on the through-cycle growth and cash generation profiles of the Semiconductor and Semiconductor Capital Equipment industries, particularly given their status as the key enablers of secular trends including 5G, AI, ADAS/AV, and more. That said, given 1) broad-based supply chain shortages and extended lead times (which historically have invited excessive ordering on the part of customers and subsequent corrections), 2) IC units excluding memory as of October tracking ~6% above what we estimate to be the long-term trend-line, and 3) the SOX trading at an next twelve months P/E multiple relative to the SPX that is at its highest since Feb 2013, we believe there are reasons to be conservative, or at least, selective at the single-stock level heading into next year. As such, we recommend investors to lean into companies/stocks that have idiosyncratic earnings drivers that could offset any cyclical moderation (or augment cyclical strength).

Five stocks are top picks for 2021. While they all are rated Buy at Goldman Sachs, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

AMD

This top company has turned the corner in a big way, and the stock is on the Goldman Sachs Americas Conviction List. 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.

The analyst said this:

Buy-rated AMD (also on the Conviction List) is our top pick in the group as we expect a continuation of strong double-digit revenue growth fueled by multiple product cycles and share gains, and margin expansion. With our calendar years 2021 and 2022 adjusted EPS estimates (ex SBC) of $2.47/$3.82 sitting 37%/65% above FactSet consensus, similar to the last few years, we see positive Street estimate revisions serving as the key catalyst for the stock.

Goldman Sachs has a solid $110 price target for the shares, while the Wall Street consensus target is just $91.31. Advanced Micro Devices stock closed on Monday at $93.23 a share.