Market volatility resulting from the recent resurgence in coronavirus cases, which many fear to be the second wave of the dreaded ailment, has kept investors on tenterhooks.
Moreover, the uncertainty regarding as to who will be the next U.S. President is adding to the turmoil. Also, the coronavirus crisis-induced economy downturn remains an overhang as people anticipate that it might pull the plug on the continued upside.
Nevertheless, green signals, which include hopes regarding acceleration in vaccine development, resuming economic operations, lower fatality rates compared with that of March and April, Fed’s aggressive stance in keeping interest rates lower amid 'extraordinarily uncertain' economy, government stimulus, are likely to instill investor optimism.
Markedly, the tech-laden Nasdaq index is continuously scaling new highs. On Jul 10, the index reached a new record high of 10,622.35 — eventually closing the trading session at 10,617.44, up 0.7%. Further, Nasdaq has gained 18.3% on a year-to-date basis.
We note that the tech sector, which has been extremely resilient to the impact of COVID-19-induced disruptions, has contributed significantly to the Nasdaq’s rally. Moreover, spike in worldwide sales of semiconductors is expected to buoy optimism.
Notably, per data from The Semiconductor Industry Association (SIA), global semiconductor industry sales were $35 billion in May, up 5.8% on a year-over-year basis and marking a sequential growth of 1.5%. According to World Semiconductor Trade Statistics (WSTS), annual global semiconductor sales are expected to witness growth of 3.3% in 2020 and 6.2% in 2021.
The optimism surrounding semiconductor stocks can also be ascertained by the robust performance of iShares PHLX Semiconductor ETF (SOXX) on a year-to-date basis, which has rallied 12% against the SPDR S&P 500 ETF’s (SPY) decline of 1.3%. Further, SPDR S&P Semiconductor ETF (XSD), which tracks the S&P Semiconductor Select Industry Index, has gained 11.1% year to date.
Higher Chip Demand from Datacenter Operators: A Key Catalyst
Semiconductors are the building blocks of most emerging technologies including AI and IoT. In fact, semiconductors are setting the pace for technology modernization, in turn, digitizing healthcare, transport, financial systems, defense, agriculture, and retail.
Moreover, coronavirus crisis-induced robust adoption of cloud computing, gaming, wearables, drones and VR/AR devices is fueling massive growth in the semiconductor space. In fact, Micron’s MU encouraging fourth quarter fiscal 2020 view and Xilinx’s XLNX revised guidance for the first quarter of fiscal 2021, suggests higher chip demand from datacenter and telecom operators.
Notably, the work-and-learn-from-home necessity is boosting demand for cloud storage. Furthermore, the coronavirus crisis has led to increase in usage of online services globally. Therefore, datacenter operators are bolstering their cloud-storage capacities to accommodate the growing demand for cloud services.
Moreover, evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm technology is expected to open up new business avenues. The accelerated deployment of 5G technology is likely to spur further growth.
What Should Investors Do?
Considering growth prospects of the chip makers, it makes sense to invest for long-term gains, regardless of second wave fears. Here, we have taken the help of the Zacks Stock Screener to shortlist four stocks that are incredible for investments. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Also, the stocks have a Growth Score of A or B. Per the Zacks’ proprietary methodology, stocks with such favorable combinations offer solid investment opportunities.
Year-To-Date Price Performance
San Jose, CA-based Synaptics SYNA is well poised to capitalize on its market-leading position for both touchpads and secure fingerprint sensors amid upbeat trends in PC shipments. New design wins across all OEM leaders, including Dell, HP and Lenovo, deserve a special mention.
Further, incremental adoption of this Zacks #1 Ranked company’s edge SoCs integrated with AI and embedded neural network capabilities for smart video and audio devices is anticipated to contribute to its financial performance.
The company has a Growth Score of A. The Zacks Consensus Estimate of $5.83 per share for 2020 earnings has been revised upward by 2 cents over the past seven days. It has a trailing four-quarter positive earnings surprise of 33.12%, on average.
Livermore, CA-based FormFactor FORM is benefiting from solid demand for both Foundry & Logic probe cards. Growing probe-card demand, customer node transitions and new design releases are major positives for this Zacks Rank #2 company. Furthermore, its increasing focus on Mobile SoC and Mobile DRAM probe-card segments is another key growth driver.
The company has a Growth Score of A. The Zacks Consensus Estimate for ongoing-year earnings has moved north by 4.4% in the past seven days to $1.18 per share. It has a trailing four-quarter positive earnings surprise of 25.14%, on average.
Mountain View, CA-based CEVA, Inc. CEVA is riding on robust licensing environment, which is driving licensing revenues. Further, the target applications for the company’s technologies that include 5G for base station run, 5G fixed wireless access, 5G back-haul and Wi-Fi 6 for IoT devices remain promising.
Moreover, solid momentum across 5G OEM customers is a tailwind for this Zacks Rank #2 company.
CEVA has a Growth Score of A. It has a trailing four-quarter positive earnings surprise of 85.97%, on average.
Denver, CO-based Advanced Energy Industries AEIS is capitalizing on strong demand in medical and life science space. Further, rising investments in foundry/logic is driving the company’s semiconductor revenues. Also, solid momentum across industrial embedded power products and hyperscale customers is a tailwind. Additionally, benefits of 5G deployment are contributing to its performance.
Synergies from Artesyn Embedded Power buyout, deep engineering capabilities in the data center market, strength in cost optimization strategy and solid product pipelines are other positives for this Zacks Rank #2 company.
The company has a Growth Score of B. The consensus mark for 2020 earnings has been revised upward by 1.3% in the past seven days to $3.08 per share. It has a trailing four-quarter positive earnings surprise of 35.25%, on average.
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Micron Technology, Inc. (MU) : Free Stock Analysis Report
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