As artificial intelligence and 5G technologies expand into more and more niches, and pick up more customers and users, the demand for semiconductor chips is growing – and the chip industry has proven resilient in the face of coronavirus and a general economic turndown. The iShares PHLX Semiconductor ETF (SOXX) is up 32% year-to-date, beating the S&P 500's 8% gain.
The strength of the chip industry has attracted notice from some of Wall Street’s top stock analysts. These analysts aren’t just looking at the big names in the chip industry; the less well-known, mid-cap companies have also been sparking analyst interest. And three top reviewers have recently tagged three of those chip makers, noting double-digit upside potentials.
Using TipRanks' Stock Comparison tool, we were able to evaluate these 3 chip players alongside each other.
Cirrus Logic (CRUS)
The first stock on our list, Cirrus Logic, is part of the fabless segment in the chip industry. The company outsources the manufacturing of semiconductor products – in this case, chips designed for voice reproduction and high-end audio systems – that it designs and markets.
Cirrus’ full fiscal year 2020 ended this past spring, and the company reported $1.28 billion in annual revenue. Fiscal year 2021 is off to a good start for Cirrus. The first quarter report, released in August, showed top line revenues of $246.6 million, up 1.8% year-over-year and beating the forecast by 7.6%. EPS was reported at 35 cents, more than triple the expected results.
Cirrus has delivered these strong results despite a difficult business environment. COVID-19 has disrupted consumer purchases, business supply and distribution chains, and global trading networks, putting up strong headwinds for Cirrus to move against.
Covering the stock for Benchmark, 5-star analyst Ruben Roy sees Cirrus in a solid position for future sales growth.
“We continue to believe that CRUS will benefit from increasing content opportunities in the smartphone and adjacent markets over the next several years as voice based applications continue to proliferate. Importantly, we believe that CRUS’ historical positioning with Apple has improved its standing with other OEMs as a component supplier that has the ability to execute on challenging engineering problems at scale,” Roy opined.
Roy’s comments support his Buy rating on the stock, as does his $95 price target, which indicates his confidence in a 33% upside for the coming year. (To watch Roy’s track record, click here)
The overall consensus rating on CRUS is a Moderate Buy, based on 8 reviews including 5 Buys and 3 Holds. This stock has a trading price of $71.13, and its $81.83 average price target suggest a 15% one-year upside. (See CRUS stock analysis on TipRanks)
Next up, Ambarella, is another fabless chip designer. Ambarella’s focus is on video applications; the company’s chips are found in video compression tools and computer vision processors. These apps were growing prior to the corona crisis, as consumers demanded more and faster video communication and streaming capabilities – but the last 8 months have seen video demand increase even more, with the hard shift toward virtual offices and remote work.
Despite the current utility value of Ambarella’s chipsets, the company has suffered from the general headwinds discussed above. Ambarella has diversified its product line by moving into automotive and video security applications, but was not able to fully compensate for the recessionary pressures in the first half of the year. In the first three quarters of 2020, AMBA reported top line results of $57 million, $54 million, and $50 million; the falling off is clear to see.
AMBA’s underperformance, however, opens up opportunities, at least in the view of Craig Hallum analyst Richard Shannon. Shannon rates AMBA as a Buy, and sets a $75 price target, suggesting the stock has room to grow 33%. (To watch Shannon’s track record, click here)
“While Auto production volumes are down considerably, and the Security market has big geopolitically-driven cross-currents, the underlying dynamics remain positive… We recognize the leap that investors need to make to buy a stock at 7x+ EV/S where sales have declined for 5 years running. However, the huge opportunities for vision-based systems in a large variety of applications, and what looks like a strong start with both CV technologies and Auto applications are encouraging,” Shannon commented.
Overall, Ambarella’s Moderate Buy analyst consensus rating is derived from 4 Buys and 2 Holds set in recent weeks. The stock average price target is $65, implying an upside of 15% from the current share price of $56.24. (See AMBA stock analysis on TipRanks)
MACOM Technology Solutions (MTSI)
Last but not least is MACOM Technology. This Massachusetts-based company caters to the Federal government, providing semiconductor components and devices for radio communications systems, especially in the microwave and millimeter wave bands. MACOM’s government customers include the Federal Aviation Administration and the National Oceanic and Atmospheric Administration. Private sector customers, like Northrop Grumman, are closely tied to government contracts.
MACOM offers a product line that is heavy into 5G, giving customers chipsets to enhance capabilities on the new networks. The company’s products include low noise amplifiers, mixers, and detectors, and are marketed at least in part on flexibility – they function across large parts of both the 5G and 4G wavebands.
Unlike the stocks above, MTSI shares have gained value this year. The stock is up 36% year-to-date – and the year still have more than two months to go. Earnings and revenues have also shown gains this year; the top line is up to $137 million, while earnings in the last quarter came in at 20 cents per share, a full 9 cents over the forecast.
5-star analyst Harsh Kumar of Piper Sandler counts himself as a fan. Kumar believes "MACOM is continuing to display exceptional execution and see the company as extremely well positioned over the near and mid-term." The analyst added, "We do not believe the risk of a5G slowdown at this point is real. Even if a slowdown does occur, we see MACOM as well insulated, as it currently does not garner more than 10%-15% of revenue from this end market."
To this end, Kumar gives MTSI shares an Overweight (i.e. Buy) rating, and his $47 price target implies a 29% upside for the year ahead. (To watch Kumar’s track record, click here)
All in all, MACOM Technology Solutions gets a Moderate Buy from the analyst consensus rating, with recent reviews including 6 Buys, 2 Holds, and 1 Sell. This stock has an average price target of $43.90 and a share price of $36.27, giving it an upside potential of 21%. (See MTSI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.