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4 Semiconductors Poised to Maintain Winning Streak in 2021

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Aniruddha Ganguly
·6 min read
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The semiconductor space is expected to have a robust 2021 on accelerated adoption of cloud computing, and ongoing infusion of AI, machine learning and IoT.

Semiconductors are the building blocks of most of these technologies. It is setting the pace for technology modernization, in turn, digitizing healthcare, transport, financial systems, defense, agriculture, and retail, among others.

Further, the coronavirus-induced work-from-home and online learning wave has driven demand for chips from PC manufacturers and data-center operators. Data-center operators have enhanced their capacities to meet the spike in demand for cloud services. The companies that provide design and other components for chip making are expected to benefit from this trend.

Markedly, the broader iShares PHLX Semiconductor ETF (SOXX) is up 47.8% outperforming the SPDR S&P 500 ETF’s (SPY) 14.3% rise year to date, reflecting the positives.

Moreover, robust adoption of autonomous vehicles, gaming, wearables, drones and VR/AR devices is fueling massive growth in the semiconductor space. Strong demand for electric vehicles (EVs) and plug-in hybrids is another key catalyst. EVs require complex electronic systems composed of advanced semiconductors.

Further, the accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur growth. New devices from smartphone makers like Apple AAPL and Samsung will make the technology more accessible. Intel INTC and MediaTek-supported 5G notebooks are also expected to appear in 2021.

Meanwhile, high-speed 5G is also expected to accelerate the adoption of IoT. These are expected to result in unprecedented demand for memory chip, power amplifier and AI semiconductors.

Additionally, growing importance of Hybrid cloud among enterprises is driving investments from large public cloud providers, including Amazon Web Services, Microsoft Azure, Google Cloud, International Business Machines and Oracle. This bodes well for data center chip providers.

In fact, the latest data from The World Semiconductor Trade Statistics (WSTS) shows that the momentum will accelerate in 2021. WSTS expects the world semiconductor market to increase 5.1% from 2019 driven by memory and sensors. For 2021, growth is currently projected at 8.4% based on double-digit growth of memory and optoelectronics.

Our Picks

Here we pick four semiconductor stocks that are well-positioned to benefit from the above-mentioned trends. Apart from having strong fundamentals, these stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, these stocks have outperformed the S&P 500 on a year-to-date basis.

Year-to-Date Performance

 

 

Qorvo QRVO is riding on gains from increased demand for 5G handsets and robust improvement in the Infrastructure and Defense Products business. Solid uptake of Bulk Acoustic Wave (BAW) filters is expected to boost the top line.

This Zacks Rank #1 company’s broad product portfolio is likely to open up new opportunities in three large global markets, namely, mobile devices, network infrastructure and aerospace/defense. Moreover, an expanding portfolio of 5G base solutions amid accelerated deployment of 5G bodes well. Also, growing momentum for Qorvo’s Gallium Nitride (GaN) technology-based solutions is a positive.

The Zacks Consensus Estimate for its fiscal 2021 earnings is pegged at $8.64 per share, having been revised 22.4% upward in the past 60 days. For fiscal 2022, the consensus mark for earnings has moved 23% north to $10.09 per share over the same time frame.

Micron Technology MU also flaunts a Zacks Rank #1. The company is gaining from solid demand for memory chips from cloud-computing providers and acceleration in 5G adoption.

Micron has been witnessing stronger memory-chip demand from PC manufacturers and data-center operators. Further, 5G adoption beyond mobile is likely to spur demand for memory and storage, particularly in IoT devices and wireless infrastructure. Furthermore, focus on improving its cost structure and increasing the mix of high-value solutions in its portfolio is likely to boost margins.

The Zacks Consensus Estimate for its fiscal 2021 earnings is pegged at $3.66 per share, having been revised 32.7% upward in 60 days’ time. For fiscal 2022, the consensus mark for earnings has moved 26.5% north to $6.78 per share over the same time frame.

MACOM Technology Solutions MTSI is benefiting from growing proliferation of cloud services. Also, high-performance analog components such as TIAs, CDRs and drivers, which are required in 100G deployment, are strengthening MACOM’s presence in the data center market.

This Zacks Rank #1 company is optimistic about strong 5G network deployment, rising demand for its RF and microwave products, strength across defense applications and growing data center traffic, which are expected to continue driving its top line. An improving free cash flow-generating ability is another catalyst.

The Zacks Consensus Estimate for MACOM’s fiscal 2021 earnings is pegged at $1.63 per share, having been revised 10.1% upward in the past 60 days. For fiscal 2022, the consensus mark for earnings has moved up 8.2% to $1.85 per share during the same time frame.

NVIDIA NVDA is benefiting from the coronavirus-induced work-from-home and learn-at-home wave. This Zacks Rank #2 company has witnessed solid demand for GeForce desktop and notebook GPUs, which is boosting gaming revenues.

Moreover, a surge in Hyperscale demand is a tailwind for the company’s Data Center business. Expansion of NVIDIA GeForce NOW is expected to drive user base. Further, solid uptake of AI-based smart cockpit infotainment solutions is a boon.

The company is also working with more than 320 automakers, tier-one suppliers, automotive research institutions, HD mapping companies and start-ups to develop and deploy AI systems for self-driving vehicles.

The Zacks Consensus Estimate for its fiscal 2021 earnings is pegged at $9.71 per share, having moved 6.4% north in the past 60 days. For fiscal 2022, the consensus mark for earnings has moved 4.5% north to $11.53 per share over the same time frame.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Qorvo, Inc. (QRVO) : Free Stock Analysis Report
 
MACOM Technology Solutions Holdings, Inc. (MTSI) : Free Stock Analysis Report
 
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