The Analysts Are Driving The Semiconductors Higher

Monday, December 28, 2020 | Thomas Hughes
The Analysts Are Driving The Semiconductors Higher

Follow The Money … To Semiconductors

The semiconductor sector is emerging as a winner for 2021 if for no other reason than our dependence on tech. The shift to digitization is in high gear and can be seen in results for companies ranging from gadgets to cloud security with everything imaginable in-between. And that means high demand for chips of all variety.

If you doubt this all you have to do is look at the data to know that Wall Street likes the semiconductor sector. The consensus price ratings and price-targets for chipmakers like Applied Materials (NASDAQ:AMAT), Broadcom (NASDAQ:AVGO), and Advanced Micro Devices (NASDAQ:AMD) are all up over the past 90 days.

In terms of the average price targets, the consensus for these stocks has risen 10% or more in that time. That’s a powerful tailwind for share prices and it is backed up by institutional buying. On balance, institutional buying within the semiconductor sector is $944 million over 2nd thru 4th quarters and nearly triple the outflow.

Mizuho Ups Its Targets For The Semiconductor Sector

Mizuho is the only the latest Wall Street sell-side analyst to get bullish on the semiconductor sector and the company’s stance is not new. The analyst at Mizuho merely upped their targets while picking some favorites amongst the group citing “a number of tailwinds” that will drive results in the coming year. Among them are ongoing rebounds in the automobile, industrial, handset, and memory end markets. Vijay Rakesh thinks the rise in demand will provide a strong macroeconomic backdrop and drive strong momentum in the group.

Among Mizuho’s top picks are Advanced Micro Devices, Broadcom, Micron (NASDAQ:MU), and Qualcomm (NASDAQ:QCOM) all of which had their price targets increased. On average, the price target increases are worth about 10% and all suggest at least a mid-single-digit increase from recent price action.

JP Morgan analysts have a similar stance having issued a very bullish note on the sector earlier in the month. According to them, the semiconductor sector is set to grow 10% in 2021 with up to 15% EPS growth and this estimate could be too low. The firm’s Overwieghted stocks are all expected to deliver better than 20% returns in the coming year.

"Our positive 2021 semi industry outlook is underpinned by multiple drivers: continued global GDP growth in CY21 from 2H20 (our economic team forecasting 5% growth in 2021), cloud/hyperscale datacenter capex growth (top 4 US CSPs up 27% Y/Y), strong 5G base station deployments (global deployment up 35%+ Y/Y), global auto production growth (up 14% Y/Y), and 5G smartphone shipments likely to more than double Y/Y."

The Semiconductor Index Is Leading The Market

The Philadelphia Semiconductor Index (NASDAQ:SOXX) has been leading the market all year. The index is up more than 50% from EOY 2019 while the NASDAQ and S&P 500 both lag. With the outlook for semiconductors so bright it is likely the sector will continue to lead in 2020. Looking at the chart, the index is in a long-term uptrend that could see another 20% upside over the coming two to three quarters.

The weekly chart is the most telling. The index staged a nice rally from the 2200 level that is now in a consolidation. The consolidation bears the hallmarks of a Bullish Flag continuation pattern that, if confirmed, could lead to 500 points of upside or more. If the momentum that JP Morgan and Mizuho see in the sector really takes hold 20% of upside is likely the minimum movement the market will produce.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Micron Technology (MU)2.4$85.15+0.9%N/A32.13Buy$107.88
QUALCOMM (QCOM)2.5$134.65+0.4%1.93%29.72Buy$166.60
Applied Materials (AMAT)2.3$130.29+1.2%0.68%33.24Buy$144.44
Broadcom (AVGO)2.3$443.83-0.2%3.24%70.56Buy$470.36
Advanced Micro Devices (AMD)1.8$77.83-1.0%N/A105.18Buy$97.24
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