Technology

BofA Securities Very Bullish on Semiconductors: 5 Top Pick Stocks to Buy for 2021

Microchip Technology

This company is a huge Internet of Things benefactor and the stock has been very strong recently. Microchip Technology Inc. (NASDAQ: MCHP) is a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing 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 many on Wall Street believe 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).

Its sales, margins and earnings per share are somewhat more levered to the cyclical stabilization and recovery that is now upon us than many peers owing to its relatively more vertically integrated manufacturing network, significant channel inventory reduction over the past seven quarters, and elevated financial leverage.

Many on Wall Street believe Microsemi and earlier acquisitions afford the company ongoing mergers and acquisitions linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).

Investors receive a 1.19% dividend. The $146 BofA Securities price target was lifted to $170. The consensus target is $146.10. Microchip Technology stock closed Wednesday at $150.70.

Nvidia

This sector leader made a huge purchase last year that is proving to be a solid tailwind. Nvidia Corp. (NASDAQ: NVDA) rarely has grown through acquisitions, but it 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.

Top analysts continue to believe the company’s exposure to some of the most exciting areas of growth in tech (gaming/esports, autonomous driving, artificial intelligence and server acceleration) will drive well above industry growth over the next few years.

BofA Securities has set a $625 price objective. The consensus figure is $591.66, and Nvidia stock was last seen Wednesday at $541.27.


We like to stay with recommendations for the large-cap market leaders as we see the potential for consolidation at some point soon for the industry, despite the positives going forward. While the path is well paved for these top companies, the big run-ups in the stock prices seem to indicate that scaling capital in and buying smaller opening positions may be the best idea after the huge “melt-up” rally off of the March and September lows and continued buying into the new year.

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