Wells Fargo: 3 stocks of chip to buy en route into 2021
Semiconductors are one of the most important industries in the modern world, enabling so much of what we rely on or what we take for granted: internet access, high-speed computers with high-speed memory, even the thermostats that control our air conditioning – that doesn’t technically exist Semiconductor chips used. With the end of 2020, it’s time for the annual ritual of valuing stocks for the new year. Wells Fargo analyst Aaron Rakers has been keeping an eye on the chip industry and has identified several companies as likely winners over the next year. The analyst sees several factors driving demand for chips in 2021, including cloud demand, new game consoles, and a market resolution for the future of the PC segment. Overall, however, Rakers expects memory chips and 5G-enabled chips to become the drivers of the industry in the next year. The analyst predicts that semiconductor companies as a group will see growth of between 10% and 12% over the next 12 months. However, this is an industry average. According to Raker, some chip manufacturers will see significantly higher growth in the range of 30% to 40% in the coming year. We can look at these companies along with the latest TipRanks data to see what makes these particular chip makers so compelling. Micron Technology (MU) Micron has staked a position in the memory segment among the leading chip manufacturers. The company’s market capitalization jumped to $ 78 billion this year, as its shares are up 32% since the start of the year. The increase is due to a line of products dealing with computer data storage, DRAM and flash memory. Looking back at 2020, Micron’s quarterly revenue grew from $ 4.8 billion in the first quarter to $ 5.4 billion in the second quarter to $ 6.1 billion in the third quarter. The result was 87 cents per share, after 71 cents in the second quarter and 36 cents in the first quarter. The third calendar quarter was Micron’s fourth quarter of Fiscal Year 20, and the entire fiscal year was down due to the COVID pandemic. Revenue was $ 21.44 billion, down 8.4% year over year. Operating cash flow decreased to $ 8.31 billion from $ 13.19 billion in fiscal 19. Last quarter, Micron’s first quarter of fiscal year 21, the company announced the release of the world’s first 176-ply 3D NAND chip. The new chip promises higher density and faster performance in flash memory, and the architecture is known as a “radical breakthrough”. The number of layers is 40% higher than competing chips. Looking ahead, Micron has updated its F1Q21 forecast, forecasting total sales of $ 5.7 billion to $ 5.75 billion. This is a 10% increase over previous forecasts. Wellgoos Aaron Rakers calls Micron his top semiconductor idea for 2021. He points to a “deepened positive view of the memory and especially the DRAM industry”. DRAM accounts for approximately two-thirds of Micron’s sales and over 80% of the company’s bottom line. “Additionally, Rakers notes,” The Micron Technology Execution – 1Znm DRAM Leadership; The 1αnm ramp was recently described in 2021 and Micron switched to 176-layer 2nd-Gen Replacement Gate 3D NAND to improve the cost curve. We would also like to positively highlight Micron’s execution on graphics memory (e.g. GDDR6X), multi-chip packages (MCPs), and high bandwidth memory (e.g. HBME2). “Consistent with these comments, Rakers rates Micron stock as a buy, along with a price target of $ 100. That number suggests growth of 41% in 2021. (To see Rakers’ track record, click here.) Micron has 24 recent valuations, broken down into 19 buys, 4 holds, and 1 sell, giving the stock a strong buy from analyst consensus. The stock is trading at $ 70.96, and the recent appreciation has brought them close to their average target price of $ 74.30. But as Rakers’ outlook suggests, there may be more than 4.5% upside here. (See MU stock analysis on TipRanks) Advanced Micro Devices (AMD) With total sales of $ 6.5 billion last year and a market cap of $ 110.7 billion, AMD is a huge company – but it doesn’t even crack the top 5 world’s largest chip manufacturers. Even so, AMD has a solid position in the industry and its x86 processors offer tough competition for market-leading Intel (INTC). AMD stocks have seen solid growth this year, up 101% at the end of 2020. The share growth is based on steady sales growth since the height of the Corona crisis in the first quarter. AMD’s Q3 revenue was $ 2.8 billion, up 55% from $ 1.8 billion in the prior-year quarter and beating forecast by 10%. At 37 cents per share, earnings increased by 220% over the previous year. The company attributed growth to solid results in its PC, games, and data center product lines, saying it was the fourth straight quarter of> 25% year-over-year revenue growth. AMD announced a new product for the scientific research market last month. the Instinct MI100 accelerator. The new chip is considered to be the world’s fastest HPC GPU and the first x86 server of its kind with a performance of more than 10 teraflops. Regarding AMD for Wells Fargo, Rakers wrote, “We remain positive about AMD’s competitive position for continued incremental growth in PCs. We also believe that AMD’s in-depth data center GPU strategy could become increasingly visible with new Instinct MI100 GPUs and the release of the RoCM 4.0 software platform later in 2021. Executing AMD’s roadmap would remain an important focus – 7nm + Ryzen 4000 series, new RDNA Radeon Instinctive GPUs for data centers (MI100 / MI120), and 3rd generation 7nm + EPYC Milan CPUs… ”Raker’s stance supports his buy recommendation , and its target price of $ 120 implies a 30% uptrend for the stock for a year. The moderate buy Analysts’ assessment of AMD reflects Wall Street’s remaining caution. The stock’s 20 most recent ratings include 13 buys, 6 holds and 1 sell. AMD stock sells for $ 91.64, and like Micron, its recent appreciation has closed the gap on its average target price of $ 94.71. (See AMD stock analysis on TipRanks.) Western Digital Corporation (WDC) Western Digital, developer and manufacturer of storage systems, completes Wells Fargo’s selection on this list. The company’s products include hard drives, solid state drives, data center platforms, embedded flash drives, and portable storage devices, including memory cards and thumb drives. WDC had a rough year in 2020, with stocks falling 19% since the start of the year. Still, the stock posted gains in November and December after releasing a strong report for the first quarter of fiscal 21. That earnings report showed revenue of $ 3.9 billion, a 3% decrease from last year, but the EPS net loss of 19 cents was a huge improvement over the net loss of 93 cents in the year-ago quarter. The earnings improvement, which beat forecast by 20%, was crucial for investors, and the stock is up 30% since the quarterly report. The company also had solid cash flow for the quarter, with cash flow from operations increasing 111% sequentially. Wells Fargo’s Rakers acknowledges the troubles WDC faces in 2020, but believes this is a stock well worth the risk. “Western Digital was our toughest constructive call in 2020 and while we believe it will remain difficult to bottom out in NAND Flash (mid / 2H2021?) And running WD in corporate SSDs will remain choppy, leaves ours SOTP analysis continues us to believe that stocks are compelling risk reward. We continue to believe that Western Digital can lead to ~ $ 7 / sh + EPS history mid-cycle. However, we continue to believe that a major driver of this fundamental upward trend will not only be a rebound in the NAND flash business, coupled with WD’s ability to see improved performance in corporate SSDs, but also an ongoing view WD’s HDD gross margin can return to sustained levels of over 30%, ”said Rakers. To do this, Rakers rates WDC with a buy and a price target of $ 65. Should the target be met, investors could see gains of 29% over the next few months. Where is the rest of the street from this computer memory maker? It looks bullish for the most part as TipRanks analysis shows WDC as a buy. Out of 11 analysts tracked over the past 3 months, 7 are bullish while 4 continue to fail. With a potential return of 9%, the consensus target for the stock is $ 54.44. (See WDC Stock Analysis on TipRanks.) To find great ideas for trading technology stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.