The current supply constraints on semiconductors for everything from iPhones to automobiles are expected to be in the history books by 2023. For investors who are looking for a longer-term investment, JPMorgan semiconductor analyst Gokul Hariharan told CNBC recently to look at two industry trends that are structural and look “really positive” over a period of three to five years.
Those two trends are high-end computing demand that companies like Apple, Tesla and Amazon are meeting with their own chip designs. The other is Chinese companies that focus on “legacy, long-tail technologies” like power management, sensors and similar markets.
For investors looking at a time horizon that is just 12 months long while still promising good returns, these longer-term plays may be interesting but not compelling.
Here’s a look at five large-cap chipmakers, with a focus on their share price and total return increases for the past 12 months and their price targets and potential share price gains over the next 12 months. One of these five firms reports quarterly results after markets close Thursday.
There’s not much dispute that Nvidia Corp. (NASDAQ: NVDA) is the past year’s top semiconductor stock. Its share price has risen by more than 135% over the past 12 months, its net profit margin of nearly 34% is the highest in this group and its total return to shareholders (including dividends, buybacks and debt paydown) over the past 12 months is about 145%.
The stock’s median price target is $350, implying an upside potential of 10.4% to a current price of around $317. At the high price target of $400, the upside potential is 26.2%. Fiscal 2022 (ending in January) revenues are forecast to rise by nearly 60% year over year, with adjusted earnings per share (EPS) projected to rise by 19%. Nvidia has reported an earnings surprise averaging 3.85% to the upside over the past four quarters and an average upside EPS surprise of 7.47% over the same period. Nvidia beat estimates on both measures in each quarter.
Based on market cap, Broadcom Inc. (NASDAQ: AVGO) trails only Nvidia in the five stocks examined here. Broadcom’s stock added 43% to its price over the past 12 months and its profit margin over that period is 22.9%, while its total return to shareholders has been about 43%. Here’s our preview of the company’s earnings report due out late Thursday.
Looking ahead, at a current price of around $586.40, the shares are trading above the median price target of $573.80. Based on a high target of $660, the upside potential is about 12.6%. For Broadcom’s 2022 fiscal year ending in January, analysts are expecting an increase of 26.4% in adjusted EPS and a revenue increase of 14.7%. Broadcom has reported an upside EPS surprise averaging 1.5% over the past four quarters and an upside revenue surprise averaging 0.7% over the same period. The company beat consensus estimates on both metrics in each of the four previous quarters.
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