Chip Shortages Are A Tailwind For Semiconductor Stocks

Several Wall Street analysts pounded the table for semiconductor stocks on Monday, noting that lingering chip shortages are a positive sign for the sector.


Mizuho Securities analyst Vijay Rakesh called chip shortages a tailwind for stocks.

“Our simple take: shortages are bullish for semis,” Rakesh said in a note to clients. “Shortages point to upside demand that the suppliers are not able to meet, and so we expect strong guides along with commentary on a stronger second half (for 2021) with good visibility as lead times extend to 12-50 weeks.”

He added, “Shortages reflect tight supply and not a lack of demand.”

Semiconductor Stocks: ‘Stronger For Longer’ Cycle

Chip shortages first impacted the automotive industry, causing carmakers to idle factories. The shortages then spread to consumer electronics, PCs, smartphones and other markets.

Among semiconductor stocks, Rakesh has buy ratings on Advanced Micro Devices (AMD), Broadcom (AVGO), Nvidia (NVDA) and Qualcomm (QCOM), to name a few. In the semiconductor equipment space, he has buy ratings on Applied Materials (AMAT) and Lam Research (LRCX).

Evercore ISI analyst C.J. Muse recommended that investors stick with semiconductor stocks in the second quarter and beyond.

“We look for an accelerating GDP (gross domestic product) environment coupled with a (chip) shortage environment to support a stronger-for-longer cycle well into the 2022 time frame,” Muse said in a note to clients.

Nvidia Stock Climbs On Data Center Chip News

His “best ideas” among semiconductor stocks include companies that have pricing power in the current shortage situation. He also likes chip stocks least affected by supply constraints, those benefiting from favorable product cycles, and ones that could benefit from strategic nationalistic investments in chip production.

Muse named Analog Devices (ADI), Marvell Technology (MRVL), Micron Technology (MU), Nvidia and Western Digital (WDC) as “top picks” among chipmakers. Among semiconductor equipment stocks, he chose Applied Materials, ASML (ASML), Lam Research and Teradyne (TER) as top picks.

Nvidia was a top gainer among semiconductor stocks on Monday. The graphics-chip maker made a slew of announcements at its online GPU Technology Conference. Among its product reveals was the company’s first data-center central processing unit, called Grace.

In afternoon trading on the stock market today, Nvidia stock jumped 6%, near 610.55.

Semiconductor Stocks On IBD Watchlists

IBD’s flagship stock screen, the IBD 50, currently includes two semiconductor stocks: ASML and Entegris (ENTG). IBD’s Leaderboard watchlist has three chip stocks: Lam Research, Nvidia and Taiwan Semiconductor Manufacturing (TSM).

Meanwhile, Raymond James analyst Chris Caso said his firm’s analysis of semiconductor end-market inventory levels in the fourth quarter is positive for semiconductor stocks.

“Given long component lead times, limited capacity additions and strong demand, we believe that semiconductor customer inventory is likely to be even leaner as companies report Q1 results,” Caso said in a note to clients.

Supply tightness is likely to persist until year’s end, he said. That means chip customers won’t be able to replenish their inventories until next year, Caso said.

“We think that should allow favorable market conditions to continue into 2022,” Caso said.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.


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