A semiconductor shortage has hit the economy hard during the pandemic, particularly the auto industry. But some chip companies remain strong.
Goldman Sachs has put together a list of its top picks in the industry that are “best positioned to support the future semiconductor ecosystem,” the firm’s analysts wrote in a commentary.
The roster includes:
1. Applied Materials (AMAT). The analysts said the company benefits from:
· "strong near-term and through-cycle wafer fab equipment fundamentals,
· “Applied’s ability to identify and address customers’ critical technology inflections through its broad product portfolio,
· “potential continued margin expansion through growing scale and value-reflective product pricing,” and
· “sustained … dividends and buybacks.”
Goldman has a 12-month price target of $151 for the stock, which recently traded at $115.22.
2. Taiwan Semiconductor (TSM). The Goldman analysts like:
· “the industry’s underlying structural growth areas, such as 5G/artificial intelligence/high performance computing,
· “TSM’s solid technology leadership and execution,
· “an easing competitive landscape,
· “and sustainable shareholder returns.”
Goldman has a price target of $168 for the stock, which recently traded at $99.15.
3. KLA (KLAC). The analysts cite the company’s “favorable leading-edge exposure, segment-leading gross margins, and strong balance sheet.” The importance of process control now and in the future “will position KLAC well against a more challenging macro backdrop in 2023,” they said.
Goldman has a price target of $430 for the stock, which recently traded at $328.74.
4. Lam Research (LRCX). “We believe the market is underappreciating Lam’s improving competitive position in the leading-edge logic/foundry markets,” the analysts said.
“We see Lam as well positioned to gain share, as the company’s competitive strengths developed for the memory markets become directly applicable to enabling the necessary power and performance benefits that foundry and logic are aiming to achieve at more advanced nodes.”
That strength stems from “foundry and logic process roadmaps prioritizing higher aspect ratio architectural features, e.g. gate-all-around transistor structures, and relying on more sophisticated deposition techniques.”
Further, “we expect an improvement in gross and operating margins as supply-side dynamics normalize (or at least, improve) and the company continues to grow into its Malaysia factory,” the analysts said.
Goldman has a price target of $648 for the stock, which recently traded at $466.92.
5. ASML (ASML) of the Netherlands. “We continue to see ASML as a core digital enabler, given its monopoly position on extreme ultraviolet (EUV) lithography, which is critical in facilitating cost-effective production of advanced semiconductors,” Goldman analysts said.
They point to:
· “solid industry spending dynamics suggesting sustainability of capital expenditures,
· “regional moves to diversify global production…,
· “upside risks to EUV application service providers…translating into better gross margin profitability…,
· “ASML’s long-term technology roadmap…”
Goldman didn’t have a price target for ASML’s dollar-based shares.
The other stocks on Goldman’s list are Japanese companies Tokyo Electron (TOELY) and Screen.
