This year, the semiconductor industry drew plenty of attention as industries across different sectors faced acute semiconductor shortages. This hampered production of different products, from automobiles to gaming consoles.
Wells Fargo analyst Aaron Rakers is upbeat about the semiconductor industry’s prospects and estimates that this industry’s sales are likely to grow 9% to 12% year-over-year in 2022. While the analyst expects this growth to moderate into 2023, Rakers still anticipates total semiconductor sales could hit $1 trillion over the next five years.
Using the TipRanks stock screener, let us look at the semiconductor stocks that analyst Rakers is bullish about, going into 2022.
Micron Technology (NASDAQ: MU)
Micron Technology is one of the analyst’s top picks for 2022, mainly due to the market outlook for its DRAM memory products. Micron’s product portfolio includes DRAM, NOR, and NAND memory and storage products through its Micron and Crucial brands.
Micron’s DRAM revenues made up 73% of its total revenues at $5.6 billion in fiscal Q1, a growth of 38% year-over-year.
Analyst Rakers foresees DRAM growth to be driven by three growth pillars: Data Center, Automotive, and Internet of Things (IoT). The analyst predicts data center architecture moving from Central Processing Unit (CPU)-centric one towards a heterogeneous data center architecture.
In addition to the data center, the analyst also believes that the rising adoption of autonomous and electric vehicles “represents an underappreciated exponential growth driver that we expect to become increasingly visible in 2022 and beyond.”
By Rakers’ estimate, the advanced driver-assistance systems (ADAS) DRAM market could be worth $10 billion over the next five years.
The analyst has forecasted DRAM bit demand growth to be in the “high-teens” or in the 20% year-over-year range in 2022, while the increase in bit supply is expected to be in the mid- to high- teens. This will create “a favorable supply / demand set-up through 2022,” according to Rakers.
Considering these growth drivers, the analyst is bullish on the stock and views Micron as a company that could deliver earnings of $8 per share over time with “underlying fundamentals [of the company] deserving of a valuation re-rate.”
The analyst has a Buy rating with a price target of $115 (19.6% upside) on the stock.
The rest of the Street is cautiously optimistic about the stock with a consensus rating of Moderate Buy based on 18 Buys, 4 Holds, and 1 Sell. The average Micron Technology stock prediction of $107.73 implies upside potential of 12% to current levels.
Synopsys (NASDAQ: SNPS)
Synopsys has a broad portfolio of application security testing tools and services. The company supplies electronic design automation (EDA) software that is used to design and test integrated circuits (ICs) and also offers semiconductor intellectual property (IP) products. These semiconductor IP products are pre-designed circuits that can be used as components of larger chip designs.
According to analyst Rakers, EDA and semiconductor IP are “some of the least understood (and most underappreciated) sub-sectors” within the semiconductor industry.
Moreover, the analyst believes that the EDA and IP industry should benefit from system Original Equipment Manufacturers (OEMs) and hyperscalers using chips developed internally. Additionally, an attempt by China to “foster a domestic chip design community” should be a plus for the industry.
Rakers considers investment in the EDA and IP in the semiconductor industry to be a “good hedge,” as investors “are not forced to make bets on winners,” in the semiconductor industry.
EDA and IP revenues made up 56% and 35%, respectively, of Synopsys’ total revenues of $4,204.2 million in FY21.
In a separate Wells Fargo research report, analyst Gary Mobley, following SNPS’s fiscal Q4 results, reiterated a Buy rating and raised the price target from $400 to $415 (11.1% upside) on the stock. The analyst raised the price target assuming a P/E (price-to-earnings) ratio over the next twelve months of 46x. Synopsys is one of the analyst’s signature picks.
Moreover, analyst Mobley also pointed out that at the end of Q4, the company had a backlog of $6.9 billion, “a significant step-up, as a result of solid run-rate growth & several large, LT [long term] deals.”
Synopsys is the one of the analysts’ Top Rated Stocks, with a Strong Buy consensus rating based on a unanimous 9 Buys. The average Synopsys stock prediction of $386.89 implies upside potential of 3.6% to current levels.
A look at SNPS stock analysis indicates that the stock has a TipRanks Smart Score of 5, indicating a neutral score. The TipRanks Smart Score is obtained from 8 different parameters, including analyst recommendations, crowd wisdom, Hedge Fund Activity, and other stock factors.
ASML Holding (NASDAQ:ASML)
ASML Holding manufactures chip-making equipment and is based out of the Netherlands. The company manufactures complex lithography systems that are important to the production of microchips.
Analyst Rakers pointed out that most investors who have invested in semiconductor capital equipment stocks are “comfortable “ with a 10% year-over-year growth in 2022 for wafer foundry equipment (WFE). But the analyst views “sentiment / visibility into 2023 as the key driver of semi cap stocks next year.”
The analyst believes that ASML is “well positioned for strong demand of semiconductors.” Rakers added that ASML could further benefit as the semiconductor industry increasingly adopts Extreme Ultraviolet Lithography (EUV) to transition to 5 nanometer (nm) and 3 nm nodes and rising opportunities in DRAM memory products.
Indeed, in a separate Wells Fargo report in September, following ASML’s analyst day, analyst Joe Quatrochi came away bullish on the stock. The company had stated at its analyst day event that it expects to earn revenues between the range of €24 billion and €30 billion in 2025 versus its earlier forecast of revenues ranging from €15 billion to €24 billion.
ASML expects the increase in revenues to be driven by rising unit shipments and market share, especially a market share gain of 100% in the EUV segment by 2025 – virtually a monopoly in this market.
As a result, Quatrochi reiterated a Buy rating and a price target of $975 on the stock.
Besides Quatrochi, 4 other analysts are also bullish on the stock, contributing to a Strong Buy consensus rating based on 4 Buys and 1 Hold. The average ASML stock prediction of $947.67 implies upside potential of 18.2% to current levels.
However, when it comes to Crowd Wisdom for the stock, the Investor sentiment is very negative about the stock. This is indicated by the fact that out of 536, 953 portfolios on TipRanks, 0.5% investors in the last week have offloaded the stock.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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