Monday 14 June 2021 11:38 am

High demand, low supply: The semiconductor players that dominate the hyperactive microchip space

Semiconductors power much of the world’s technology, making it possible for families and friends to talk face-to-face from across the ocean or for Wall Street to move billions of pounds in the blink of an eye.

And with more applications being produced worldwide, demand for semiconductor devices only continues to grow. The popularity of such stocks therefore comes as no surprise, given the immense earning potential for investors in a growing market.

Moreover, the semiconductor market resisted the backlash from the global pandemic and related economic crisis, posting a 6.5 per cent increase in earnings over 2020, according to Maxim Manturov, head of investment research at Freedom Finance Europe

With the ever-growing demand for semiconductor devices, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, sat down with City A.M. to discuss which industry players currently get the most attention in the market.

Growth in the microchip space is only likely to continue with the mass adoption of Internet of Things and 5G, as well as the rising demand for semiconductors in the automotive industry.

In fact, 79 per cent of management of various semiconductor companies expect their return on investment (ROI) to rise in 2021 compared to 2020, while 85 per cent say their companies will have higher earnings.

“This is down to the fast development of semiconductor technologies across the board, stemming from the work-from-home trend, as well as remote education and entertainment,” Manturov told City A.M. today.

“In turn, this has led to higher demand on microchip-based products; the semiconductor companies responded to this by adjusting to new market needs,” he added.

Leading names

With the industry continuing to grow there are a plethora of companies active in this space, but what are the fastest-growing semiconductor players at the moment?

Firstly, Manturov singled out Applied Materials Inc (AMAT), a company supplying production equipment, as well as software and services for semiconductor, display, and related industries. The average target price is at $156.20, with 17.50 per cent upside potential, he said.

Secondly, there is NVIDIA Corporation (NVDA), a global enterprise working in both graphics and computing and network domains. The average target price is at $682.20 with a 15 per cent upside potential, according to Manturov.

Broadcom Inc is another software producer that is making waves, creating market software for semiconductor infrastructure. The average target price is at $526 with 16 per cent upside potential.

Next up is Micron Technology Inc (MU), a company supplying DRAM devices across the globe for cloud servers, graphics, networks, and mobile devices. With an average target price at $119, upside potential is 38%, according to Manturov.

QUALCOMM Incorporated (QCOM) is a well-known tech name around the world, a company that creates markets core technologies and products for mobile and other wireless devices, such as network equipment, broadband gateways, consumer electronics, and other connected devices across the globe. Manturov said the average target price is at $170 and a 23 per cent upside potential.

Lam Research Corporation (LRCX) is a big manufacturer of markets semiconductor processing equipment used for integrated circuit production. It also engages in repair and maintenance. The average target price is at $740, with a 17 per cent upside potential.

Finally, Advanced Micro Devices Inc (AMD) is on many investors’ radar at the moment: a semiconductor manufacturer working in both computing and graphics niches. The average target price is at $107, with a 35 per cent upside potential.

“Potential growth is based on connectivity technologies involving IoT, 5G, as such technologies use a huge number of microchips, which the semiconductor companies will be supplying,” Manturov explained.

Another thing, which is more permanent than cyclic, is the rising demand for microchips in the automotive industry, with greater electric vehicle market share and a better technology stack, he concluded.