While on the surface it would seem that the semiconductor stocks have all been moving in a parabolic swing higher forever, the reality is that over the past three years the compounded annual growth rate for the sector has limped along at a very sluggish 2%. The analysts at BofA Securities point to simmering and ongoing trade tensions, the global pandemic and a maturing 4G smartphone cycle as the main reasons for the slow growth.
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The good news for investors is the BofA team is very positive in 2021. They see growth jumping to a massive 8% compounded annual growth rate from calendar year 2020 to 2022, and in a new research report they detail these reasons for the firm’s very bullish forecast:
1) Global gross domestic product jumping to 5.4% in 2021. The highest since 1973.
2) Very lean investors across the sector.
3) Enhanced investments in 5G as phone units grow two times year over year.
4) Semiconductor manufacturing reshoring.
5) Secular tailwinds from AI, gaming, IoT and digitization of the global economy
While the ongoing impact from the COVID-19 pandemic is still a wildcard, and rising interest rates could have an impact on trading multiples, the analysts feel that investors will look to the semiconductor space as a way to boost what they call “high-quality alpha generation.”
BofA Securities combines both semiconductor and semiconductor capital equipment in the research report. We are focused on the five top picks from the semiconductors. While all are rated Buy, 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 a favorite on Wall Street. 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.
BofA Securities has a solid $110 price target for the shares, which compares with a lower Wall Street consensus target of $92.06. Advanced Micro Devices stock closed trading on Wednesday at $91.78 a share, down almost 4% on the day.
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