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Missed AMD's 2020 Rally? Buy These 4 Chip Stocks for 2021

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Radhika Pujara
·7 min read
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Advanced Micro Devices AMD has been one of the top gainers so far this year. The stock soared 111.2% on a year-to-date basis compared with the Nasdaq and S&P 500’s rally of 39.2% and 14.8%, respectively.

The scintillating performance can be attributed to robust uptick in Ryzen and EPYC server processors, courtesy of increasing proliferation of AI and Machine Learning (ML) in industries like cloud gaming and supercomputing domain.

Growing clout of 7 nanometer (nm) products in the data center vertical, driven by coronavirus crisis induced work-from-home and online learning trends, aided AMD withstand volatility and broad-based macroeconomic weakness.

Moreover, notable customer wins on the back of its high-performance portfolio of processors and continued innovation in high performance computing (HPC) ecosystem has been a major growth driver.

Further, the Xilinx XLNX acquisition provided a significant boost to AMD's data center business. Also, partnerships with Amazon, Microsoft, Baidu and JD.com are opening newer business avenues.

Notably, this Zacks Rank #3 (Hold) stock has a trailing four-quarter earnings surprise of 8.27%, on average.

Semiconductor Stocks Poised for a Blockbuster 2021

The semiconductor space has witnessed strong growth so far this year. Notably, the broader iShares PHLX Semiconductor ETF (SOXX) is up 47.8% compared with the SPDR S&P 500 ETF's (SPY) rally of 13.3% year to date.

Ongoing infusion of AI and ML, scoupled with momentum in digitization, HPC applications, gaming, wearables, drones, electric vehicles (EVs) and VR/AR devices is fueling massive growth in the semiconductor space.

This can primarily be attributed to the coronavirus crisis, which has led to increase in usage of online services globally.

Growing clout of high-speed networking, smartphone processors and high-performance data center applications increases the necessity to deliver advanced chips further, which in turn favors prospects.

Further, evolution of semiconductor manufacturing processes from 10 nm to 7 nm and even 5 nm technology is opening new business avenues.

Microchip demand is also likely to get a boost with the 5G boom in Europe and parts of Asia, including China and Singapore. IDC expects 5G smartphone shipments to grow to 58% in 2024 from 19% of global volume in 2020, which should act as a tailwind for the semiconductor market.

These factors are expected to help semiconductor stocks in 2021. In fact, per latest World Semiconductor Trade Statistics data, worldwide sales of semiconductors are now projected to hit $433 billion in 2020, suggesting year-over-year improvement of 5.1%, driven by memory and sensors. Previously, the tally was estimated to hit $426 billion, indicating growth of 3.3%.

Also, the global semiconductor market is now predicted to improve 8.4% in 2021, based on double-digit growth of memory and optoelectronics, compared with prior projected growth of 6.2%.

Here we pick four semiconductor stocks which are poised for an AMD-like run on the bourses in 2021, on the back of strong fundamentals. Apart from this, the chosen stocks have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Per the Zacks’ proprietary methodology, stocks with such a perfect mix of elements offer solid investment opportunities.

Notably, each of these chip stocks has a market cap of more than $1 billion and outperformed the S&P 500 index on a year-to-date basis.

Year-to-Date Price Performance



 

Our Picks

MACOM Technology Solutions Holdings MTSI is well positioned to capitalize on strong backlog driven by momentum across data center and telecom markets. Further, growing proliferation of cloud services has been benefiting both domestic and international deployment of the company’s solutions.

Also, high-performance analog components and drivers, which are required in 100G deployment, have been strengthening MACOM’s presence in the data center market.

Growing data center traffic amid strength across 5G network deployments, rising requirement for its RF (or radio frequency) and microwave products, and solid demand across defense end-market are other tailwinds. An improving free cash flow generating ability is another positive.

This Zacks Rank #1 company with Growth Score of A has a market cap of $3.36 billion. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has been revised upward by 10.1% in the past 60 days to $1.63 per share, suggesting growth of 66.3% from the year-ago quarter.

Amkor Technology AMKR is currently benefiting from solid cost-control efforts and strength in its growing advanced system and package area. Strong performance by advanced product lines is driving its top line.

Further, growing need for advanced packaging technologies in consumer and communications markets is a major positive. Strong momentum across ADAS infotainment applications is also a tailwind for this Zacks Rank #1 company. Further, growing demand for advanced chips and modules in the computing market is a catalyst. Growth opportunities associated with 5G are expected to strengthen the company’s presence in the communications space through 2021.

With a market cap of $3.75 billion, Amkor has Growth Score of B. The Zacks Consensus Estimate for its 2021 earnings improved 28.6% over the past 60 days to $1.35.

Advanced Energy Industries AEIS is poised to gain from strong momentum across semiconductor equipment, telecom and networking, industrial and medical, and data center verticals.

Particularly, solid demand for the company’s power supplies for medical applications, amid growing clout of critical care medical devices, is expected to contribute to its top line in 2021. Moreover, increasing investments in foundry/logic, complex 3D NAND devices, DRAM, and foundry and logic remains a tailwind for this Zacks Rank #2 company.

Also, strengthening momentum across hyperscale customers is benefiting the company. Further, positive contributions from Artesyn buyout are positives. Notably, the successful integration of Artesyn has generated significant synergies (roughly $30 million) and record accretion ($1 per share over the past four quarters).

Additionally, benefits of rapid 5G deployment and growth prospects in data center market are encouraging.

Advanced Energy Industries has a Growth Score of A and a market cap of $3.83 billion. The Zacks Consensus Estimate for its 2021 earnings has moved north by 11.8% in the past 60 days to $5.51 per share.

Investors looking for large cap stocks, can count on Broadcom AVGO, which is set to gain from robust demand for wireless solutions and continued momentum in networking and broadband solutions.

The company is witnessing strength in networking end market driven by increased spending by telecommunication companies in modernizing Edge and core networks, and higher cloud spending by data centers.

Solid uptick in cable DOCSIS 3.1 products and Wi-Fi 6 in next-generation access gateway devices, across large enterprises, telcos and other service providers, is expected to drive growth through 2021.

Further, favorable work-from-home trends amid acceleration in 5G deployment, significant production ramp up and increase in RF content are expected to boost revenues from telecom and consumer end-markets for this Zacks Rank #2 company.

Also, Apple’s AAPL plan to boost iPhone production, positions Broadcom well to gain as it is a notable supplier. Notably, on Jan 23, Broadcom inked two separate multi-year agreements with iPhone maker. Per the 8K filed with the SEC, the deals are collectively anticipated to generate $15 billion for the chipmaker.

Broadcom has a Growth Score of B and a market cap of $171.87 billion. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has been revised upward by 3.7% in the past 30 days to $26.23 per share, suggesting an improvement of 18.4% from the year-ago quarter.

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
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
 
Xilinx, Inc. (XLNX) : Free Stock Analysis Report
 
Amkor Technology, Inc. (AMKR) : Free Stock Analysis Report
 
Advanced Energy Industries, Inc. (AEIS) : Free Stock Analysis Report
 
Broadcom Inc. (AVGO) : Free Stock Analysis Report
 
MACOM Technology Solutions Holdings, Inc. (MTSI) : Free Stock Analysis Report
 
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