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Semiconductor stocks have got off to a strong start in the new year. Following the Consumer Electronics Show (CES) 2021, an analyst at BofA Securities outlined the key emerging trends that could impact trading in semiconductor stocks.
1. Intel CEO Transition: Intel Corporation's (NASDAQ: INTC) appointment of industry veteran Pat Gelsinger to enhance technical depth among the top rank is a welcome development, analyst Vivek Arya said in a note.
Involvement of an activist investor, robust PC market, positive preannouncement for the fourth quarter and new 10nm product announcements at the CES, as well as the promise of 7nm improvements all led to the 16% year-to-date rally in the stock, the analyst added.
However, the CEO transition is unlikely to reverse Intel's market share loss to Advanced Micro Devices, Inc. (NASDAQ: AMD), non-CPU building blocks including accelerators and DPUs and alternative ARM-based internal chip designs from customers such as Apple Inc (NASDAQ: AAPL) and Amazon.com, Inc. (NASDAQ: AMZN), the analyst said.
Intel's manufacturing fixes, including partial outsourcing to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE: TSM), aren't likely to bear fruit before late 2022 or 2023, Arya said.
2. Taiwan Semiconductor Capex Boost: The beneficiaries from Taiwan Semiconductor's surprising decision to boost capital spending by 50% are semiconductor capital equipment stocks such as Applied Materials, Inc. (NASDAQ: AMAT), KLA Corp (NASDAQ: KLAC), Lam Research Corporation (NASDAQ: LRCX) and Teradyne, Inc. (NASDAQ: TER), Arya said.
Semiconductor capital equipment stocks, the analyst said, will also benefit from Intel's desire to maintain its internal manufacturing, and the trend towards greater onshoring of semi production globally.
3. Auto Chip Shortage — Short-Term Handicap, But Long-Term Positive: With auto production expected to sharply rebound in 2021 and estimated to grow 10-15% on a year-over-year basis, chip supply is found in shortage, Arya said.
"L-t, capacity additions and dissipating COVID-19 headwinds should ease constraints, with EVs (~2% of mkt) and growing infotainment, safety, and ADAS apps driving auto semi growth well above SAAR for several years," the analyst wrote in the note.
4. SMID-cap, Semi Equipment Stocks In Favor: The top five year-to-date gainers are Applied Materials, KLA, II-VI, Inc. (NASDAQ: IIVI) and Lam Research, Arya noted. This is due to rising rates that has led to near-term rotating investor flows out of higher PE, more "secular growth" stocks, he added.
Photo: Taiwan Semiconductor Manufacturing Co., Ltd.
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