Some of the hottest stocks in the market in recent years have come from the semiconductor space. KeyBanc analyst Weston Twigg on Tuesday initiated coverage on 10 popular semiconductor stocks and downgraded another, but his across-the-board Sector Perform ratings suggest he’s not particularly confident in semis at the moment.
“We're constructive on the long-term trajectory of the industry as new demand drivers emerge,” Twigg said. “Still, softening cycle metrics, near-term demand dynamics, and trade war risks are likely near-term headwinds.”
Twigg said semi companies with larger scale will likely be able to navigate the current environment best by investing in acquisitions and research. He also said investors should focus on companies with exposure to servers, automotive, memory, and industrial/Internet-of-Things technology.
Here’s an overview of what Twigg had to say about the 11 stocks.
- Analog Devices, Inc. (NASDAQ: ADI) - Twigg said Analog has exposure to both the auto and industrial end markets and is also well-positioned to benefit from the rollout of 5G wireless networks.
- Advanced Micro Devices, Inc. (NASDAQ: AMD) - Twigg said a product refresh has put AMD in position to gain both PC and data center market share, but the stock’s meteoric rise in 2018 limits additional upside.
- Intel Corporation (NASDAQ: INTC) - Twigg said Intel will remain dominant in its major markets, but headlines of share losses to AMD and other competitors will likely continue to weigh on the stock in the near-term.
- Microchip Technology Inc. (NASDAQ: MCHP) - Twigg said Microchip’s earnings multiple has contracted thanks to its aggressive consolidation strategy, but he is positive on the long-term impact of M&A on market share and earnings growth.
- Maxim Integrated Products Inc. (NASDAQ: MXIM) - Twigg said the trade war and a soft auto market will likely pressure the stock in the near-term, but auto and industrial exposure will be key long-term drivers and will ultimately lead to above-industry growth.
- NVIDIA Corporation (NASDAQ: NVDA) - Twigg said Nvidia is firing on all cylinders with its new Turing architecture, and its gaming, datacenter and pro visualization technology, but the stock is priced for perfection at this point and additional upside may be difficult.
- ON Semiconductor Corp (NASDAQ: ON) - Twigg said ON has done an excellent job of transitioning away from the commodity semiconductor business and increasing its industrial, automotive and data center exposure, but tariff concerns will continue to be a headwind in teh near-term.
- QUALCOMM, Inc. (NASDAQ: QCOM) - Qualcomm’s $30 billion in stock buybacks, a potential settlement with Apple, Inc. (NASDAQ: AAPL) and Huawei and an opportunity to regain market share in 5G are all positives, but Twigg said these catalysts are increasingly being reflected in Qualcomm’s market valuation.
- Silicon Motion Technology Corp. (NASDAQ: SIMO) - Twigg said investors can expect impressive growth in SSD controllers over the next two years, but Silicon Motion will also be experiencing headline risk related to moderate mobile declines.
- Texas Instruments Incorporated (NASDAQ: TXN) - Twigg says Texas Instruments has one of the best management teams in the space and has tremendous scale advantages, but investors will likely remain cautious given trade war uncertainty.
- Cypress Semiconductor Corporation (NASDAQ: CY) - Cypress was the lone downgrade of the group, with Twigg dropping his rating from Overweight to Sector Weight. He said Cypress' exposure to the auto, industrial and IoT markets is a long-term positive, but gross margin estimates may be at risk in the near-term.
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