I/O Fund’s Preview of 7 Semiconductor Stocks Ahead of Q3 Earnings
October 20, 2021
This quarter we chose Nvidia, Lam Research, Ambarella, Advanced Micro Devices, Broadcom, Marvell Technology, and Qorvo for an earnings preview. We also tried to understand what analysts are expecting from these companies. The list includes popular names in the semiconductor sector and companies like Qorvo, which has been out of favor recently in the eyes of investors.
To understand valuations across semis and how the sector is positioned moving into earnings, please reference our analysis “I/O Fund’s Semiconductor Q3 2021 Earnings Preview.”
NVIDIA Corporation – Earnings on November 17th
Nvidia’s revenue growth is expected to continue to be strong. Management mentioned in the last earnings call that the QoQ growth will be led by strong demand in the data center along with other segments that are also growing steadily. They also indicated that the gross margins will be around 65.2% plus or minus 0.5%. We also expect some new comments on the Arm acquisition in the earnings call. You can read our analysis of Why the Arm Deal Should be Approved here.
KeyBanc analyst John Vinh has an overweight rating on the stock and increased the price target from $245 to $260. He mentions that “The firm's quarterly supply chain findings are mixed, as demand remains healthy, but a multitude of supply disruptions, including COVID lockdowns in Southeast Asia, power restrictions in China, and kitting issues, could result in near-term uncertainty and limit upside.”
Jefferies increased the price target to $260 from $233. They are positive on the company due to the strong performance of the company’s data center and software segments. Their report also suggests that Nvidia’s share in accelerator instances increased 1% in July to 79% on new deployments of A100 and V100 chips.
Goldman Sachs analyst Toshiya Hari said after the company’s strong previous quarter earnings report, “We increase our go-forward estimates on the back of today’s print, and importantly, continue to view Nvidia as the best positioned company to address and monetize the proliferation of accelerating computing”.
Please note, the I/O Fund may or may not agree with the financial analysts mentioned above yet we objectively report what the Street is saying. You may view our previous analysis on Nvidia below:
Our premium members have been updated frequently on the company with ongoing entries at $31.50, $51.20, $97.40, $105.30, $120.60, $124.50, $123.50, $138.90, $206.60, $208.90
Lam Research – Earnings on October 20th
Lam research continues to have steady revenue growth. The wafer fabric equipment demand has been strong as the semiconductor industry is benefitting from the leading technologies like 5G, IoT, AI, and edge computing.
UBS analyst Timothy Arcuri who has a buy rating on the stock lowered the company’s price target to $715 from $780. The analyst sees some “potential moderation" in DRAM and NAND WFE spending moving through 2022.
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Susquehanna analyst Mehdi Hosseini downgraded the stock to neutral and lowered its price target to $690 from $750. The analyst says "the beat-and-raise cycle for the company is already behind us with all the good news already dialed. With quarterly wafer fab equipment peaking in the second half of 2021, there is enough of a deceleration in spend growth rate into 2022 that cannot be offset by services and/or share gains.”
Ambarella Inc – Earnings on November 23rd
Ambarella has seen rapid revenue growth in the last quarter and consensus estimates suggests 61% revenue growth in the next quarter. The company has successfully tapped the computer vision technology market with the increasing demand for its chips for drones, VR cameras, security cameras, and automotive cameras. However, it would be prudent to note that the growth was partly due to lower comps due to Covid-19.
KeyBanc analyst John Vinh upgraded Ambarella to Overweight from Sector Weight with a $185 price target. The analyst sees "multiple favorable tailwinds" related to the adoption of computer vision within the security and automotive end markets amid limited competition with the HiSilicon ban. He also has increasing confidence in front-facing advanced driver assistance systems adoption. Further, with its "highly differentiated CV/AI assets" and adoption in auto tech, Ambarella represents one of the most attractive takeover targets in semiconductors.
Roth Capital analyst Suji Desilva believes “Ambarella represents a differentiated investment opportunity in computer vision and low-power video processors.” He has a buy rating on the stock and has raised the company’s price target to $170 from $130.
Cowen analyst Matthew Ramsay has an outperform rating with a price target of $150. The analyst said “that the business is really inflecting in terms of growth and operating leverage with upside that is no longer a leveraged story to GoPro and drones.”
Advanced Micro Devices Inc – Earnings on October 27th
The company had a blowout last quarter. It also raised the revenue guidance for the full-year 2021 and the 5nm roadmap is on track for 2022. The company has been able to capture market share from Intel and reports suggests that Intel might cut CPU server prices.
Source: Earnings Presentation
Piper Sandler analyst Harsh Kumar has a price target of $120 and an overweight rating. The analyst says AMD is looking very solid into year-end and is very well positioned as enterprise spending returns, as the company should benefit within both the PC and server markets.
BMO Capital analyst Ambrish Srivastava has a price target of $110. He says " Considering the company's continued execution and the expansion in estimates, the shares look relatively more reasonably valued than they did earlier in the year,” argues Srivastava, who also believes there is continued upward bias to estimates through the year as AMD starts to ramp designs it has already won on the data center side.
Goldman Sachs analyst Toshiya Hari has a buy rating and a price target of $130. In his words “We believe AMD’s recent CPU/GPU wins in supercomputing have important and positive implications for the company’s forward trajectory in the data center, as design wins in supercomputing are awarded based primarily on performance with good insight into future technology/product roadmaps”.
Broadcom Inc – Earnings on December 10th
Broadcom delivered record revenues in the third quarter with good growth in cloud, 5G infrastructure, broadband, and wireless. The management expects the trend to continue in the next quarter. The free cash flows were 51% of total revenue and they expect the cash flows to be strong in the next quarter.
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Barclays’ analyst Blayne Curtis has an overweight rating and a price target of $540. In his words “AVGO has one of the highest exposures to the Enterprise end market (50% of semi revenue), which should continue to improve into next year. AVGO guided Wireless up 33% QoQ (in line with our model) and we see some upside into Jan given likely contents gains at AAPL (WiFi 6E, touch, wireless charging, DCM) with another potential step up in 2023 with the AAPL modem. AVGO remains one of our preferred names for 2022 given its cheap relative valuation, more resilient end markets into next year (Ent, DC, Wireless), further content gains at AAPL, and likely accretive Software M&A”.
Truist analyst William Stein has a buy rating and a $564 price target. In his words “Investors should continue to buy the stock for its 3% dividend yield and the double-digit dividend growth over the long term”.
JPMorgan analyst Harlan Sur has an overweight rating and a $600 price target. He believes that the “stock offers a solid setup for 2022 based on order visibility and product cycles”.
We’ve discussed in the past how Broadcom could potentially be a good choice for an inflation trade:
Marvell Technology – Earnings on December 3rd
The company’s revenue growth has been strong due to the growth in the data center revenues (40% of 2Q FY22 revenues). The inclusion of Inphi also provided an earnings bump. The management believes that the data center will further drive the third quarter growth along with 5G business. During the recent Investor Day the company increased the long-term growth rate to 15%-20%.
Needham analyst Quinn Bolton has a buy rating and a $75 price target. "Marvell's management highlighted the significant growth opportunities associated with cloud-optimized silicon. These growth drivers are accelerating the company's SAM, which is now forecast to grow from $20bn in 2021 to $30bn in 2024, or at a 13% CAGR, with the 5G/data center/automotive portion of this SAM growing at a 20% CAGR over this period.”
Barclays’ analyst Blayne Curtis has an overweight rating and a price target of $70. In his words “Marvell raised its growth target of 15-20% with drivers across every segment. This has been a multi-year transition but the message was very clear that the company has re-shaped its portfolio to take advantage of growth in the Cloud and Infrastructure markets with the broadest set of IP and process technologies.”
KeyBanc analyst increased the price target to $80 from $70. “Marvell increased its long-term revenue growth target to 15%-20% from 10%-15% previously. The increased growth rate is being driven by Increased focus on optimizing solutions for cloud data center growth, emphasis on auto, cloud and 5G, and expansion into autonomous compute processors, which represents a $5.3B TAM.”
Qorvo Inc – Earnings on November 04th
The company’s 1Q FY 22 results have been good. However, the stock has failed to meet market expectations. The management’s revenue guidance for the next quarter is $1.235B to $1.265B, the midpoint $1.25B suggests a 18% YoY growth and a growth of about 27% YoY when adjusted for last year’s 14-week quarter. They also increased the top line forecast for the fiscal year 2022 to 15%-20% from the earlier of approximately 15%.
Oppenheimer analyst Rick Schafer raised the company’s price target to $250 from $220 after the company earnings beat and forecast upgrade. He is positive on the company increasing the outlook in spite of the supply constraints.
Benchmark analyst David Williams has a buy rating and $225 price target. He is also positive after the company’s strong previous quarter results. “The demand environment remains strong and he continues to appreciate incremental content gains in 5G with increasing complexity”.
Craig-Hallum analyst Anthony Stoss also raised the company’s price target to $225 from $220. The analyst cites “big bottom-line beat, with Qorvo posting a 52.5% gross margin, and operating margin of 33.1% near record levels.”
The I/O Fund is a team of analysts that share their research publicly as they build a portfolio of 30 stocks. Our team has record results for a retail Fund and we also have four-digit gains on some of our free newsletter coverage. You can learn more about our premium service by clicking here or sign up for our free newsletter here.
Our premium members have been updated frequently on Nvidia with ongoing entries at $31.50, $51.20, $97.40, $105.30, $120.60, $124.50, $123.50, $138.90, $206.60, $208.90
Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
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