While it may 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 segment 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.
The good news for investors is the BofA Securities team is very positive for 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:
- Global gross domestic product jumping to 5.4% in 2021. The highest since 1973.
- Very lean investors across the sector.
- Enhanced investments in 5G as phone units grow two times year over year.
- Semiconductor manufacturing reshoring
- 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 affect 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. Here we focus on the four top picks for the semiconductor capital equipment companies. The top companies all got a huge boost last week when Taiwan Semiconductor announced a massive increase in capital expenditures. The company reported capex last year of about $17.8 billion and forecast spending in 2021 in the range of $25 billion to $28 billion.
While all four of the picks are rated Buy at BofA Securities, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This is one of the premier semiconductor capital equipment stocks and is a great tech addition for more aggressive investors. Applied Materials Inc. (NASDAQ: AMAT) provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through three segments.
The Semiconductor Systems segment develops, manufactures and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. This segment also offers various technologies, including epitaxy, ion implantation, oxidation/nitridation, rapid thermal processing, physical vapor deposition, chemical vapor deposition, chemical mechanical planarization, electrochemical deposition, atomic layer deposition, etching and selective deposition and removal, as well as metrology and inspection tools.
The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity comprising spares, upgrades, services, remanufactured earlier generation equipment and factory automation software for semiconductor, display and other products.