Semiconductor stocks posted strong gains in 2020, but analysts believe their gains will accelerate in 2021. Three major investment companies Evercore ISI, Jefferies and Morgan Stanley have named what they think are the most promising semiconductor stocks.
The NASDAQ Composite, which includes tech stocks, ends 2020 with three times the gain of the broader S&P 500.
While the NASDAQ Composite is up 38.64% since the start of the year, the S&P 500 grew 12.9% in 2020, the Dow Jones, which includes just 30 blue-chip stocks, is up 4.64%.
The COVID-19 pandemic has disrupted supply chains and impacted demand, but the largest semiconductor companies reported better-than-expected financial performance in the past three quarters.
Semiconductor companies have benefited from a massive acceleration of digitalization as businesses, employees, schools and students have had to move their work online. The sector of data centers, video games and the needs of technology companies have grown, as there has been a surge in demand for software for remote work, study and communication, as well as a surge in sales of computers and other equipment.
CJ Muse, an analyst at investment bank Evercore ISI, believes that the rise in semiconductor stocks is ahead of six to eight quarters.
“Despite another year of outperforming results in 2020, we think the growth cycle for semiconductor stocks is just beginning,” said analyst CJ Muse.
The Evercore expert predicts that in the first half of 2021, the revenues of the global semiconductor industry will grow by 14% and amount to $ 500 billion.
Drivers of this growth will be the digitalization of all industries, the acceleration of the launch of 5G networks, the development of AI / ML (artificial intelligence and machine learning) technologies, large-scale recovery in the automotive / industrial industry, as well as the expected further development of the PC and the restoration of network infrastructure.
Evercore’s 2021 investment outlook includes seven semiconductor stocks that the company has named as its favorites: Nvidia (NVDA), Analog Devices (ADI), Micron Technology (MU), Qualcomm (QCOM), ASML (ASML), Applied Materials (AMAT ) and Teradyne (TER).
Analyst CJ Muse singled out Nvidia shares in particular, raising their price target from $ 600 to $ 675. Nvidia’s shares are up more than 126% year-to-date, and the company has posted strong revenue and earnings growth over the past four quarters.
Nvidia stock offers “best-in-class opportunities for continued growth” in artificial intelligence, video games and autonomous driving, the expert said.
The latest strong growth driver for Nvidia’s stock was its major deal to buy British tech leader Arm Holdings from SoftBank. Once approved by regulators and completed, Nvidia’s deal boasts large streams of revenue from licensing chip technologies used by Apple (AAPL), Qualcomm, Samsung, AMD, Amazon (AMZN) and even Intel (INTC).
Jefferies analyst Mark Lipasis also named Nvidia stock as the top pick among semiconductor stocks. Other favorites include Analog Devices, Advanced Micro Devices (AMD), Microchip Technology (MCHP), NXP Semiconductors (NXPI), ON Semiconductor (ON), and Tower Semiconductor (TSEM).
Morgan Stanley analysts predict the biggest growth for companies like Micron and Western Digital (WDC), also seeing strong growth opportunities for Qualcomm, Teradyne and Sensata Technologies (ST).
Among the unnamed companies, Wall Street analysts also point to the Taiwanese semiconductor company Taiwan Semiconductor (TSM), which is up more than 78% this year. The world’s largest semiconductor manufacturer, Taiwan Semiconductor has a market share of about 55% and will play an important role in the development of the global semiconductor market for many years to come.