Semiconductor stocks were mixed on Wednesday after a rough week of trading as concerns have grown about the impact of the Wuhan coronavirus on the Chinese economy. But while the coronavirus scare is very real, a big earnings beat from Apple, Inc. (NASDAQ: AAPL) suggests the underlying market for semiconductor companies remains strong.
This week, Bank of America analyst Vivek Arya said the coronavirus creates downside risk in the first quarter for semiconductor stocks, especially those exposed to smartphone, auto and industrial end-markets. However, Arya says any near-term weakness could be a buying opportunity. Here are seven of his top semiconductor stock picks.
Intel Corporation (NASDAQ: INTC)
Following a record fourth-quarter earnings report and impressive 2020 guidance earlier this month, Arya said Intel has a rare combination of catalysts ahead. Despite recent CPU production issues, Intel is still the market share leader and has size and scale advantages over smaller competitors.
In addition, the breadth of Intel’s portfolio provides a safety net for investors, and the fact that the stock is under-owned among active portfolio managers creates a buying opportunity, Arya said. Intel is Arya’s top cloud semiconductor stock pick for 2020.
Bank of America has a Buy rating and $75 price target for INTC stock. NVIDIA Corporation (NASDAQ: NVDA)
Nvidia is another top stock picks with exposure to the cloud computing theme.
Arya said Nvidia’s gaming business should get a boost from the upcoming next-generation consoles expected to hit shelves in time for the holiday season. He said Nvidia has a sustainable leadership position and double-digit revenue growth opportunity in gaming. In the data center business, Arya said Nvidia’s artificial intelligence and natural language processing exposure will continue to drive demand, while robotics, health care and smart cities are potential upside catalyst. Nvidia is also a leader in autonomous vehicle innovation.
Bank of America has a Buy rating and $300 price target for NVDA stock.
Advanced Micro Devices, Inc. (NASDAQ: AMD)
AMD took a huge hit this week following a disappointing earnings report, but the stock remains one of Arya’s preferred cloud-exposed semiconductor plays.
Arya said much of the initial market disappointment in 2020 guidance is simply unrealistic expectations after AMD was the top-performing stock in the entire S&P 500 in 2019. Expectations aside, Arya said AMD is once again guiding for more than 20% revenue growth and 80% earnings growth in 2020 and is exposed to several of the largest secular growth markets in the tech world today. AMD has gained CPU market share from Intel, and a gaming upgrade cycle and product launches throughout the year could be bullish catalysts.
Bank of America has a Buy rating and $62 price target for AMD stock. Skyworks Solutions Inc (NASDAQ: SWKS)
Skyworks is one of Arya’s top 5G wireless network upgrade cycle picks.
Arya said he likes Skyworks’ pristing balance sheet, including $1.3 billion in net cash. The company’s robust earnings also provide an opportunity for buybacks or potential acquisitions. Gross margins are trending in the right direction, and Arya estimates Skyworks could hit 53% margins by 2022. Finally, Skyworks should be a long-term beneficiary from the increasing RF complexity of 5G and subsequent devices. Skyworks has impressive share among all major 5G device vendors.
Bank of America has a Buy rating and $145 price target for SWKS stock. Qorvo Inc (NASDAQ: QRVO)
Like Skyworks, Qorvo is another 5G network play that Arya prefers.
Like other smartphone chipmakers, Qorvo’s fate is tied closely to Apple, which makes Apple’s big quarter this week encouraging. Roughly half of Qorvo’s revenue is derived from Apple. Qorvo has estimated its 5G total addressable market in 2020 will be $2 billion. Unfortunately, Bank of America is anticipating China will be the fastest nation to adopt 5G technology in 2020, suggesting the coronavirus scare could impact Qorvo and its peer group more than other semiconductor stocks in the near-term.
Bank of America has a Buy rating and $130 price target for QRVO stock. Marvell Technology Group Ltd. (NASDAQ: MRVL)
Arya says Marvell has the most comprehensive portfolio of 5G technologies. In addition, the company is exposed to the top three 5G base station vendors (Samsung, Ericsson and Nokia).
Arya said Marvell should be able to sustain double-digit revenue growth for at least the next couple of years as 5G-related sales ramp from between $40 million and $50 million in the second half of 2019 to between $300 million and $400 million in 2020 and between $500 million and $600 million in 2021.
Bank of America has a Buy rating and $32 price target for MRVL stock. NXP Semiconductors NV (NASDAQ: NXPI)
NXP is Arya’s top auto industry semiconductor stock pick to buy on the dip.
Arya said electric and autonomous vehicles could be one of the three biggest growth drivers in the entire semiconductor industry over the next several years. Core semiconductors account for just 3% of the total average bill of materials for the standard car and 28% of the electronics BOM. Arya said this share has plenty of room for growth as automakers incorporate more high-level AV and EV technology. Bank of America is projecting the $38 billion auto semi market will grow 6% annually over the next three years.
Bank of America has a Buy rating and $155 price target for NXPI stock. Latest Ratings for AMD
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