Investing

Why These 5 Semiconductor Equipment Stocks Now Have Huge Potential Upside

Onto Innovation

Onto Innovation Inc. (NYSE: ONTO) designs, makes and sells process control tools and systems to detect defects in chip fabrication. The company’s market cap is around $3.62 billion, and the stock gets a Buy rating from Stifel. Onto’s share price has dipped by about 2.4% in the past 12 months. Since posting its 52-week high in mid-January, the stock has dropped about 31%.

The company is trying to expand its serviceable available market and recently introduced an advanced chip packaging inspection platform that can also be used in early wafer inspection applications. Stifel’s analysts note that the new platform “is part of why we believe Onto’s growth, improved operating performance, and resiliency is under-appreciated.”

Onto’s 12-month price target is $100, implying upside potential of 36.8% from a price of around $73.10. The stock’s 52-week range is $62.15 to $106.09.

Smart Global

This supplier of specialty memory, storage, LED and embedded/high-performance computing products and services has a market cap of $1.04 billion. For the trailing 12 months, Smart Global Holdings Inc. (NASDAQ: SGH) stock had dropped by about 13%. Since posting an all-time high in early January, the stock has declined more than 42%. Stifel has a Buy rating on the shares.

Under a new chief executive, the company acquired Cree’s specialty LED business in what Stifel’s analysts believe is a smart move beyond the company’s traditional memory and storage businesses. The analysts noted that over the past year, gross margins have improved by about 600 basis points “driven by performance improvements and structural diversification of the revenue mix.”

Stifel’s 12-month price target is $45. That implies upside potential of 115% from a price of around $20.90. The stock’s 52-week range is $62.15 to $106.09.

Teradyne

Teradyne Inc. (NASDAQ: TER) makes and sells automated test equipment to a variety of industries, including chipmakers. The company’s largest customer is Apple, and Stifel’s analysts note that Teradyne’s revenue from the Cupertino colossus “has already meaningfully contracted this year.” Teradyne’s market cap is around $14.65 billion, making it the largest company in this group and the only one to receive a Hold rating from Stifel. The share price has fallen by about 30% over the course of the past 12 months and by more than 45% since its late December peak.

Stifel’s analysts noted “investor concerns over whether future iOS smartphones” using advanced 3-nanometer SOCs will play nicely with older chip technologies. The jury is still out on that one, the analysts said. Teradyne is planning to grow its industrial automation business as well. The analysts like the company’s strategy and prospects but see headwinds to growth for this year. In the longer term, growth prospects improve.

Stifel’s 12-month price target of $115 implies upside potential of 25.5% from a price of around $91.60. The stock’s 52-week range is $89.68 to $168.91.

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