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Which Semiconductor Stock Could be the AMD of 2019?

Zacks Equity Research

Semiconductors, being the primary building blocks of technology, have benefited immensely in 2018 on the back of rapid proliferation of Internet and growing influence of digitalization in our day-to-day lives.

Robust demand for memory chips and other semiconductor products due to the rapid adoption of cloud, Internet of Things (“IoT”), autonomous cars, advanced driver assisted systems (“ADAS”), gaming, wearables, drones, virtual reality/augmented reality (“VR/AR”) devices, artificial intelligence (“AI”), and crypto-currencies are fueling massive growth in the space.

The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. Additionally, positive trends in overall IT spending and improving PC shipments are encouraging.

The latest predictions from World Semiconductor Trade Statistics (WSTS) on semiconductor sales also boost confidence in this industry space. The WSTS predicts semiconductor sales to increase 2.6% in 2019.

AMD: One of the Best Choices in 2018

Advanced Micro Devices, Inc. AMD turned out to be one of the best performers in the semiconductor industry in 2018. The company’s shares have appreciated nearly 65.4% in the year-to-date period. Meanwhile, iShares PHLX Semiconductor ETF SOXX and Technology Select Sector SPDR ETF’s XLK declined 12.3% and 3.6%, respectively.

AMD is benefiting from robust adoption of GPU’s driven by increasing adoption of artificial intelligence (AI) techniques and machine learning tools in industries like gaming, automotive and blockchain. Strong adoption of EPYC server processors is a key catalyst. AMD’s collaborations with Baidu, Amazon, Tencent, Microsoft and JD.com are other positives.

We note that the company delivered positive earnings surprise of 24.7% in the trailing four quarters.AMD, carrying a Zacks Rank #3 (Hold), has surged 76.6% on a year-to-date basis against the industry’s decline of 4.7%.

The Zacks Consensus Estimate for fiscal 2018 earnings is likely to witness an increase of 170.6% year over year. The consensus mark for revenues is expected to increase 22.5%.

The stock has a long-term expected growth rate of 14%. Further, the company has a market cap of $19.49 billion.

3 Other Stocks in Focus

Apart from AMD, there are few other semiconductor stocks that have the potential to outperform in 2019. We have zeroed in on three stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy), and have witnessed significant estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel Corporation INTC is another semiconductor stock which seems a lucrative option at the moment. As the world’s largest semiconductor manufacturer, Intel has its hands in nearly every corner of the modern tech world. Further, Intel is likely to gain persistently as cloud computing and the Internet of Things continue to grow.

Intel Corporation Price and EPS Surprise

 

Intel Corporation Price and EPS Surprise | Intel Corporation Quote

This Zacks #1 Ranked company has surpassed the Zacks Consensus Estimate in the preceding four quarters, with average positive surprise of 18.7%. The EPS estimate for the ongoing quarter increased 10.9% to $1.22 per share during the same time frame. The stock has a long-term expected growth rate of 8.4%.

The next stock on our radar is Xilinx, Inc. XLNX which flaunts a Zacks Rank of #2. San Jose, CA based Xilinx designs and manufactures a broad range of high-performance, high-density programmable logic devices. The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, recording average positive surprise being 8.7%. The company has witnessed sharp upward estimate revision in the past 60 days. The EPS estimate for the current quarter increased 14.9% to 85 cents per share during the same time frame. The stock has a long-term expected growth rate of 9.5%.

Xilinx, Inc. Price and EPS Surprise

 

Xilinx, Inc. Price and EPS Surprise | Xilinx, Inc. Quote

Notably, growth in wireless and wired businesses due to LTE upgrades, early deployment of 5G in Korea and preparation for 5G deployment in both China and North America bode well for the company. Moreover, Xilinx’s ongoing transition from a field programmable gate arrays (FPGA) provider to an all-programmable devices producer has been aiding it in gaining market share and countering stiff competition from the peers.

Our next pick is Mellanox Technologies, Ltd. MLNX. The company is one of the major suppliers of 25, 50, and 100GB Ethernet adapters, switches, and cables to the market today. In fact, per Crehan research estimates, Mellanox had a market share of 69% in the high-speed Ethernet adapter business in second-quarter 2018, leaving its peers trailing.

Mellanox is benefiting from solid demand of its Gigabit EDR solutions in machine learning, artificial intelligence, high-performance computing, database and storage. We believe the company’s enhancements to product portfolio with robust capabilities; inorganic additions and expanding customer base favor its growth prospects.

Mellanox Technologies, Ltd. Price and EPS Surprise

 

Mellanox Technologies, Ltd. Price and EPS Surprise | Mellanox Technologies, Ltd. Quote

The company has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise being 16.3%. The company has witnessed upward estimate revision in the past 60 days. The EPS estimate for the current quarter increased 6.5% to $1.31 per share during the same time frame. The stock has a long-term expected growth rate of 19%.

Moving Forward

As the semiconductor market is setting the pace for technology modernization, a sneak peek at these possible outperformers backed by a solid Zacks Rank and a healthy return will be a lucrative choice. AMD might have a lot going for it in 2018, but these stocks seems to hold potential for the future and is likely to reward shareholders generously.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>


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