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As investors fled this industry in 2022, and while they have recovered from some of the losses in recent days, semiconductor stocks have dropped sharply in the past week. The semiconductor company Micron (MU) presented a significantly weaker trade outlook than expected last weekafter declining demand, raising concerns that the industry is heading into a down cycle amid broader fears of an economic downturn.
If that happened, it would be very different from the large semiconductor shortage that occurred last year, as demand surged amid the Covid-19 pandemic, hurting production in the auto, consumer device, computer and smartphone industries. Many analysts are predicting a downturn in the industry, and Japanese bank Nomura believes most names in the industry should be avoided, but named some exceptions.
Considering that the semiconductor memory constitutes a considerable component of the Asian semiconductor industry, and that the sector is “relatively undervalued,” The bank highlighted South Korean giants Samsung, the world’s largest semiconductor device maker, and SK Hynix, with price targets of $84,000 ($64) and $160,000 South Korean won ($120), respectively, representing increases of 46% and more than 70% of the July 5 closing value.
Deutsche Bank described the American company Broadcom (AVGO) as a “safe haven” in the current “macro storm,” due to its “combination of semiconductor products with relatively minimal consumer-oriented exposure,” giving the $700 price target, representing the potential increase of nearly 47%.
The bank suggests that Broadcom has a “desirable stability in an environment of increasing macro/semi-sectoral volatility and is an attractive investment for those who value long-term returns”. Citi, in a July 5 note, named the Analog Device (ADI) as your top choice in the industry for its defensive naturegiving the company a price target of $192, representing an advantage of about 34%.
Bank of America and equity research firm Morningstar have listed the Dutch semiconductor equipment maker ASML (ASML) as one of your top choices in the industry. Bank of America believes the company will see “superior growth” over its peers, being a “defensive name in uncertain times.” The company’s shares closed at around $409 euros on July 1st, which implies a potential increase of 79% on Bank of America’s $733 price target on the shares.
As for Morningstar, the company believes that “with TSMC (TSM), Intel (INTC) and Samsung (SSNNF)all vying for leadership in process technology, we expect ASML to be the main beneficiaryas it sells tools to all three manufacturers.”
rain from electric saws
Neil Campling, director of telecommunications media and research at Mirabaud Equity Research, on the other hand, warned investors that the semiconductor sector just “looks optically cheap” as this is an industry that could continue to face “cyclical risks and selling pressures,” so “we don’t want to take this dangerous rain of chainsaws.”
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