The Microchip Shortage Will Last For Years
With the global microchip shortage affecting every industry imaginable, all eyes are on the semiconductor industry. It is assured the market will eventually catch up but it is highly debatable when that will be. A recent report from Gartner (NYSE:IT) suggests the industry will catch up with demand sometime in the second half of 2022 while Intel (NASDAQ:INTC) thinks the chip shortage could last several years. What we know for sure is that microchip companies are ramping production and expanding their infrastructure. We also know that it could take years just to build a new semiconductor manufacturing facility. What this means for the industry at large and investors is a cycle of explosive growth and we think these three stocks are well-positioned to lead the market.
1. Advanced Micro Devices Joins The Big Leagues
Long a niche player, recent advances in Advanced Micro Devices (NASDAQ:AMD) technology have helped drive its sales to new highs. Over the past year, the company has broken into the ranks of the top 15 semiconductor manufacturers globally and is on track to gain market share over the next few years as well. To put this in perspective, Advanced Micro Devices Revenue grew 93% year-over-year in Q1 and the company is expected to sustain sequential and year-over-year growth going forward.
Analyst Cody Acree of Benchmark cited these very factors when the company began coverage of the stock. In their view, AMD’s current server market share is very small and does not reflect recent design wins or business momentum. They expect AMD to continue gaining market share over the next few years and for earnings to trend higher along with it. Benchmark’s price Target is $100, $3 above the consensus, assuming roughly 25% upside and we think this is low. The high price target is $125 and more in line with what we're seeing in the charts. A break to new highs above $100 should easily reach $125 by the end of calendar 2021 if not the end of the summer.
2. Ambarella Is The Leader In Computer Vision
Ambarella (NASDAQ:AMBA) caught the attention of the analyst community when it reported Q4 earnings earlier this year. The consensus is the company has turned a corner with its budding computer vision business and on track for growth to accelerate over the next few years. Now, computer vision is a big deal. We're not just talking self-driving cars or Roomba robots that can see where they're going, computer vision has applications across industries and verticals. Anywhere that you may want your computers to see what's going on ( think IoT connected devices) you are going to need computer vision technology and Ambarella want to sell it to you.
Among the most advanced applications are warehouse and supply chain management. Not only will computers be able to see and track the flow of materials and products but they will be able to spot problems before they arise, maintain inventories, and produce order lists among many other applications. The company is slated to release earnings this week and we expect it to be a blowout. The current consensus estimate assumes 25% YoY growth, significant earnings Leverage, and a stock price target 20% above the recent price action.
3. NXP Semiconductors Bets Big On Connected Vehicles
NXP Semiconductors (NASDAQ:NXPI) has been fundamental for the automotive industry for a very long time and it is working hard to maintain its fundamental position. To that end, it announced a new collaboration with Sibros for the next generation of IoT-connected vehicles. The collaboration will pair Sibro's Deep Connectivity platform with NXP’s already state-of-the-art Automotive processors to bring cars to life. The combined platform will support a wide variety of new use cases including location-based services, driver behavior analysis, usage-based insurance, in-vehicle marketplaces, and Fleet Management.
