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Wells Fargo: 3 stocks of chips to buy as we head to 2021
Semiconductors are one of the essential industries in the modern world, making much of what we trust or take for granted possible: internet access, high-speed computers with high-speed memory, even the thermostats that control our air conditioning – not much, in terms of technology, which does not use semiconductor chips. With the end of 2020 in sight, it’s time for the annual stock valuation ritual for the new year. Aaron Rakers, an analyst at Wells Fargo, is eyeing the chip industry, marking several companies as likely winners next year. The analyst sees several factors combining to increase demand for chips in 2021, including cloud demand, new game consoles and a market resolution for the future of the PC segment. Overall, however, Rakers expects memory chips and 5G-enabled chips will emerge as the industry drivers next year. The analyst expects semiconductor companies, as a group, to grow between 10% and 12% over the next 12 months. This is an industry-wide average, however. According to Raker, some chip companies will show significantly higher growth, of the order of 30% to 40% next year. We can examine these companies, along with the latest data from TipRanks, to find out what makes these specific chip makers so attractive. Micron technology (MU) Among the major chip makers, Micron has achieved a position in the memory segment. The company saw its market value expand to $ 78 billion this year, with a 32% appreciation in the year. The increase occurs in a product line that is busy with computer data storage, DRAM and flash storage. Going back to 2020, Micron saw revenues increase each quarter, from $ 4.8 billion in the first quarter to $ 5.4 billion in the second quarter to $ 6.1 billion in the third quarter. Profit stood at 87 cents per share, up from 71 cents in the 2nd quarter and 36 cents in the 1st quarter. The third quarter was Micron’s 4TFY20, and the entire fiscal year showed a decline due to the COVID pandemic. Revenue stood at $ 21.44 billion, down 8.4% year on year, and operating cash flow dropped to $ 8.31 billion from $ 13.19 billion in FY19. During the last quarter, Micron’s 1QFY21, the company announced the launch of the world’s first 176-layer NAND 3D chip. The new chip promises higher density and faster flash memory performance, and the architecture is described as a ‘radical breakthrough’. The layer count is 40% higher than competing chips. Looking ahead, Micron updated its orientation to F1Q21, forecasting total revenue of $ 5.7 billion to $ 5.75 billion. This is a 10% increase over the previous guidance. Aaron Rakers of Well Fargo calls Micron his main semiconductor idea for 2021. He points out “a deepening of the positive view on memory and, in particular, the DRAM industry. DRAM accounts for approximately two-thirds of Micron’s revenue and more than 80% of the company’s profits. ”In addition, Rakers notes“ Micron technology execution – 1Znm DRAM leadership; recently outlined the 1αnm ramp in 2021, as well as Micron’s move to the 176-layer 2nd generation 3D NAND replacement door to drive the improved cost curve. We would also highlight the execution of Micron in graphics memory (for example, GDDR6X), Multi-Chip Packages (MCPs) and High bandwidth memory (for example, HBME2) as positives. ”In line with these comments, Rakers estimates that Micron shares a purchase, along with a $ 100 price target. This figure suggests room for 41% growth in 2021. (To see Rakers history, click here) Micron has 24 recent reviews recorded, dividing into 19 purchases, 4 retentions and 1 sale, and giving stocks a strong buy from the analyst consensus. The shares are quoted at $ 70.96, and the recent appreciation has pushed them almost to the average price of $ 74.30. But, as Rakers’ perspective suggests, there may be more than just a 4.5% increase available here. (See MU stock analysis at TipRanks) Advanced Micro Devices (AMD) With $ 6.5 billion in total sales last year and a market capitalization of $ 110.7 billion, AMD is a giant company – but it doesn’t even make it into the world’s top five chip makers. Even so, AMD has a solid position in the industry and its x86 processors offer strong competition for the market-leading Intel (INTC). AMD’s shares showed solid growth this year and rose 101% as 2020 comes to an end. Stock growth is based on steady revenue gains since the peak of the first quarter corona crisis. AMD’s third-quarter revenue was $ 2.8 billion, up 55% from the $ 1.8 billion recorded in the same quarter last year and exceeding the forecast by 10%. Profit, 37 cents per share, grew 220% year over year. The company credited the growth to solid results in the PC, gaming and data center product lines, and boasted that it was the fourth consecutive quarter with revenue growth> 25% year over year. AMD last month announced a new product for the scientific research market, the Instinct MI100 accelerator. The new chip is announced as the world’s fastest HPC GPU, and the first x86 server to exceed 10 teraflops. AMD coverage for Wells Fargo, Rakers wrote: “We remain optimistic about AMD’s competitive positioning for continued sustained gradual share gains on PCs … We also believe that deepening AMD’s data center GPU strategy with new MI100 Instinct GPUs and the launch of the RoCM 4.0 software platform may become increasingly visible as we move forward in 2021. AMD roadmap execution would remain an important focus – 7nm + Ryzen 4000 series, new RDNA Radeon data center GPUs Instinct (MI100 / MI120) and 3rd generation 7nm + EPYC Milan CPUs … ”Rakers’ position supports his Buy rating and his $ 120 target price implies a 30% increase in inventory in one year. The Moderate Purchase Analysts’ consensus view of AMD reflects some residual caution on Wall Street. The 20 recent stock reviews include 13 purchases, 6 retentions and 1 sale. AMD shares are selling for $ 91.64 and, like Micron, its recent appreciation has closed the gap with the average price target of $ 94.71. (See AMD stock analysis at TipRanks) Western Digital Corporation (WDC) Closing Wells Fargo’s choices on this list is Western Digital, a designer and manufacturer of memory systems. The company’s products include hard drives, solid state drives, data center platforms, built-in flash drives and portable storage, including memory cards and USB flash drives. The WDC had a difficult year in 2020, with a 19% drop in the year to date. Even so, the shares had gains in November and December, in the wake of what was seen as a strong fiscal report for 1Q21. This earnings report showed $ 3.9 billion in revenue, which fell 3% year on year, but the net EPS loss, 19 cents, was a tremendous improvement in the annual comparison compared to the net loss of 93 cents in the quarter the previous year. The improvement in profits, which exceeded the forecast by 20%, was fundamental for investors, and the shares are up 30% since the quarterly report. The company also generated solid cash flow in the quarter, with cash from operations growing 111% sequentially. Well Fargo’s Rakers recognizes the difficulties of the WDC in 2020, but nonetheless believes that it is an action that is worth the risk. “Western Digital was our most difficult constructive decision of 2020, and while we believe that hitting bottom in NAND Flash (mid / 2H2021?) Remains difficult and WD execution on corporate SSDs will remain unstable, our SOTP analysis leads us to continue to believe that the shares perform an attractive risk reward. We continue to believe that Western Digital can reach an average cycle EPS history of ~ $ 7 / sh. +; however, we continue to think that a primary driver of this key advantage will not only be a recovery in the NAND Flash business, coupled with WD’s ability to see improved execution on enterprise SSDs, but also a continuing view that the HDD’s gross margin of WD can return to a sustainable level of 30% + ”, said Rakers. To that end, Rakers classifies the WDC as a purchase along with a target price of $ 65. If the target is met, investors can pocket 29% gains in the coming months. Where does the rest of the street side with this computer storage manufacturer? It seems mostly optimistic, as TipRanks’ analysis demonstrates WDC as a purchase. Of the 11 analysts monitored in the last 3 months, 7 are optimistic, while 4 remain marginalized. With a potential return of 9%, the consensus target price of the stock is $ 54.44. (See WDC stock analysis on TipRanks) To find good ideas for trading technology stocks with compelling valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock perceptions. Disclaimer: The opinions expressed in this article are only those of the analysts presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.