Technology stocks continue to lead the charge as the market rallies on the back of stronger-than-expected earnings results and positive economic signs. The Nasdaq climbed over 11,000 for the first time ever, with its recent winning streak spurred by Apple AAPL, Amazon AMZN, and other giants.
The S&P 500 is also right back near its pre-coronavirus highs because Wall Street is always ready for what’s next. For instance, the market didn’t shudder at the brutal second quarter GDP data from the U.S. and Germany since that was anticipated as it captured the largest portion of the lockdowns. Investors can also see signs of things getting better in the form of improving third quarter earnings estimates.
On top of that, the market is already seemingly pricing in a second stimulus bill. And it can’t be hammered home enough that Wall Street must seek returns somewhere in the current interest rate environment.
Along with operating under a don’t fight the Fed mantra, investors have perhaps also determined that the economy and people will learn to live with Covid-19 because there is no alternative until there is a vaccine.
That said, the coronavirus pandemic has crystalized why investors need to be exposed to technology more than ever before. Companies big and small, across every possible industry rely heavily on various forms of tech. And the biggest and best tech companies have just proven they can make money during the worst of economic downturns.
At the core of much of our current technological world rests the semiconductor industry. So, let’s dive into three chip stocks that investors might want to buy as the industry helps advance everything from cloud computing to artificial intelligence…
Taiwan Semiconductor Manufacturing Company TSM
Taiwan Semiconductor is the world’s largest semiconductor manufacturer, with 56% market share. This means that it’s helping drive the chip revolution and it will likely continue to for years to come, as some of the biggest and most innovative names in the market, including the likes of Nvidia, turn to TSMC to manufacture their chips. TSMC runs a dedicated semiconductor foundry business and it claims to boast the “world's largest semiconductor design ecosystem” and has enabled “85% of worldwide semiconductor start-up product prototypes.”
Investors should note that more tech firms are looking to foundries, such as TSMC, for their integrated circuit production because the costs and time involved have grown enormous. This makes the idea of building chips in-house far less attractive, if not impossible for many. TSMC’s Q2 earnings surged 81% on 29% higher revenue, as it margins climbed. “Moving into third quarter 2020, we expect our business to be supported by strong demand for our industry-leading 5nm and 7nm technologies, driven by 5G smartphones, HPC and IoT-related applications,” CFO Wendell Huang said in prepared remarks.
TSMC is set to help propel the next big thing in chips, the cutting-edge 5-nanometer transistors. And it appears that Wall Street is starting to get wise, with TSM shares up 50% in the last three months and 100% over the last year. TSMC’s strong earnings revisions help it grab a Zacks Rank #2 (Buy) at the moment. The stock also rests within a highly-ranked Zacks industry and its 1.64% dividend yield crushes the 10-year U.S. Treasury note and is a nice added bonus given TSMC’s long-term growth prospects.
Advanced Micro Devices AMD
AMD’s processors have become a mainstay in the PC market and its expansion into gaming and data centers provides ample room for growth. The company competes alongside the likes of Nvidia and its CPUs are outshining rival and industry titan Intel INTC. For instance, the announcement of its new 7nm Ryzen desktop processors on July 21 helped send its stock to new highs, only a week before it posted strong second quarter results.
AMD’s quarterly sales surged 26% and it raised its guidance, which is no easy task at the moment. The firm is also set to benefit from the holiday 2020 launches of the and next-generation Xbox and PlayStation and its cloud-focused chips are being used by Microsoft MSFT and others. And the good news kept coming, when AMD announced on August 4 the “availability of new AMD Radeon Pro 5000 series GPUs for the updated 27-inch iMac.”
Looking ahead, our Zacks estimates call for AMD’s fiscal 2020 sales to surge 32%, to easily top FY19’s 4% jump, as well as FY18’s 23% and FY17’s 22%. AMD’s FY21 revenue is then expected to jump another 20% higher. Meanwhile, its adjusted earnings are projected to soar 72% this year and 46% next year.
AMD is a Zacks Rank #3 (Hold) at the moment, with its bottom-line estimates up big since its report. The chip firm’s shares have soared 50% since July 21 and they climbed to new highs once again Thursday—all part of an epic five-year run that still appears to have legs.
Nvidia is a GPU giant that’s ready to benefit from the expansion of the global gaming market for years to come. The company also had the foresight to expand into data centers and elsewhere. The firm closed in late April its $7 billion acquisition, its largest ever, of Mellanox Technologies to help bolster its data center unit. Plus, NVDA’s new Ampere architecture is set to play a key role within AI-focused chips and in cloud computing.
Back in May, NVDA topped our Q1 estimates, with sales up 39%, driven by an 80% climb in data center revenue—which topped $1billion for the first time. Nvidia’s longer-term earnings estimates have climbed since its report and the stock is currently a Zacks Rank #3 (Hold). And Wall Street has rewarded NVDA’s growth story, with shares up nearly 200% in the past 12 months to destroy the broader semiconductor market’s 43%.
Nvidia is also up 15% in the last month, heading into the release of its second quarter fiscal 2021 financial results that are due out on August 19. With this in mind, NVDA’s revenue is projected to surge 42% and 33%, respectively in Q2 and fiscal 2021. At the bottom end of the income statement, NVDA’s adjusted earnings are projected to soar 56% and 36.5% over this same stretch.
Peeking ahead, Nvidia’s adjusted FY22 EPS figure is expected to jump another 22% higher on 18% stronger sales. NVDA also pays a dividend and has a solid balance sheet to boot.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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