Amid the ongoing trade war with China, a somber picture is being painted of the semiconductor industry. China announced on August 23 that it would be imposing new tariffs on $75 billion worth of U.S. goods, including chips. It didn’t help when Trump responded by stating that U.S. companies should find manufacturing options other than China on the same day, with the escalation sending the VanEck Vectors Semiconductor ETF down 4%.
Despite the fact that China and the U.S. have agreed to a meeting set to take place at the beginning of October, trade war fears still weigh heavily on investors’ minds.
“[The] base case for the trade war now is no deal before the 2020 US election,” Citigroup said in a research note to clients.
However, the industry received good news just a few days before on August 19 after the U.S. gave Chinese tech giant Huawei a “temporary general license” extension. This means that Huawei is able to buy from American suppliers for an additional 90 days.
Bearing this in mind, we used the TipRanks Stock Screener to take a closer look at a few semiconductor stocks to see if analysts think they can survive a market weight down by flaring trade war tensions. This tool let us filter stocks by Market Cap, Sector and even the Analyst Consensus.
Let’s dive in.
Advanced Micro Devices, Inc. (AMD)
Since the August 23 escalation, shares of AMD are up 3%.
While some investors have expressed concern regarding the $39 million loss in revenue associated with the blacklisting of Huawei, the company is still a force within the semiconductor space.
Even with its relatively small $33 billion market cap compared to that of its competitors, namely Intel (INTC) and Nvidia (NVDA), which have market caps of $226 billion and $109 billion, respectively, AMD’s products speak for themselves. This is evidenced by AMD’s Q2 GPU shipments growth rate of around 10% versus NVIDIA’s GPU shipments remaining flat.
Its commitment to constantly improving its product offerings is expected to pay off in the long-run. Its new 7-nanometer Ryzen CPUs are expected to outperform and require less power than equivalent products from its competitors. Its new EPYC Rome server processor, which should be launched during the third quarter, has already garnered significant industry approval. Several partners are now using the platform according to CEO Lisa Su.
AMD’s foray into the gaming world could also drive substantial revenue growth. With new consoles slated for a 2020 release, the company is expecting to see an increase in demand for semi-custom chips.
While some believe that these positive developments have already been factored into the share price, one five-star analyst highlights its superior PC GPU revenue growth compared to that of NVDA’s as making it especially strong. As a result, Nomura’s David Wong reiterated his Buy rating and $37 price target on August 23. He thinks shares could surge 21% over the next twelve months.
In general, the Street is optimistic about AMD. Its ‘Moderate Buy’ analyst and $34 average price target suggest 11% upside potential.
Micron Technology Inc. (MU)
The computer memory and storage producer has surged 14% since the August 23 tariff announcement.
Not to mention MU is coming off of a Q3 2019 earnings and revenue beat posted on June 25. That being said, revenue declined 39% year-over-year and management offered lower-than-expected guidance for Q4.
Recently, MU has fallen victim to weaker DRAM and NAND demand as well as pricing as a result of higher inventories. It doesn’t help that MU would take a hit if the Huawei ban resumes after the extension, with the tech company accounting for 13% of its revenue in the first half of fiscal 2019.
While investors were hoping to see a turnaround in the fourth quarter, some analysts claim that this would have been widely unrealistic. However, management’s expectation of increased DRAM demand from cloud vendors should help improve MU’s standing with forecasts indicating a turnaround that’s set for the second half of 2020.
Deutsche Bank analyst Sidney Ho expressed that Global trade tensions are actually shifting some of the bargaining power from memory buyers to memory suppliers even as inventory levels are still elevated.
“DRAM prices spiked in July and have since retreated as expected but are still approximately 10% above the June levels. We believe risks of further significant price declines are diminishing and see Micron's fiscal Q4 as the trough quarter in the current cycle,” he explained. As a result, the five-star analyst reiterated his Buy rating and $55 price target on September 4. The analyst’s price target demonstrates his confidence in MU’s 12% upside potential.
All in all, MU has a ‘Moderate Buy’ analyst consensus as well as a $49 average price target.
ON Semiconductor Corporation (ON)
The last semiconductor on our list has seen a 5% jump in the wake of the tariff announcements. Despite a weak Q2 earnings release, analysts think ON is set to continue to gain.
On August 5, ON reported that it saw lower-than-expected revenue in its second quarter as a result of the automotive market’s sharp broad-based inventory correction.
“So far, in the current downturn, cyclicality in our revenue and margins has been lower than that of our peer group. Our performance thus far speaks to the transformed nature of our business and our focus on highly differentiated power, analog, sensor and connectivity products for automotive, industrial and cloud power end markets,” CFO Bernard Gutmann stated.
While management isn’t expecting this figure to improve in the next quarter, some analysts are still picking ON thanks to the expected meaningful deployment rates for 5G systems and its continued investments in the business.
During the quarter, the company finalized its acquisition of Quantenna Communications, a company that provides connectivity semiconductor solutions for WiFi. Once fully integrated, Quantenna should help ON expand its reach in the carrier segment.
Management also stated that the ramping up of the adoption of electric vehicles and active safety should drive significant growth in the power semiconductor and sensor businesses. It doesn’t hurt that ON has already seen impressive growth in the cloud power market, with it seeing more than 60% year-over-year growth on cloud power products and applications.
Based on all of the above factors, BNP Paribas analyst Jerome Ramel initiated coverage with a Buy on August 30.
The rest of the Street is confident that this semiconductor stock still has room to grow. ON has a ‘Strong Buy’ analyst consensus, with its $23 average price target implying 25% upside potential.