3 Large-Cap Chipmakers Rallying Into Market Leadership
Although the global chip shortage appears to be easing somewhat, the law of supply and demand is spurring growth in chipmakers such as Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ:...
Although the global chip shortage appears to be easing somewhat, the law of supply and demand is spurring growth in chipmakers such as Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD) and Qualcomm (NASDAQ: QCOM).
While analysts are now saying the shortage of semiconductors will last through 2022 and continue to affect manufacturing, there’s a bit of good news. An India-based trade group said this week that it sees a 25% improvement in chip availability.
That sentiment was amplified by Micron Technology (NASDAQ: MU) CEO Sanjay Mehrotra, who says the shortage could last into 2023, but that it continues to improve. General Motors (NYSE: GM) is putting more North American production facilities back online, signaling that chip shortages are easing.
Meanwhile, companies including Samsung are opening more chip plants, including a growing number in the U.S.
Despite that optimism, the chip shortage will affect manufacturing for some time to come. Items like cars and iPhones will likely be tougher to acquire not only this holiday season, but into next year.
Generally, when there’s high demand for a product or service, you’ll see stocks of providers rise, particularly if there’s a limit to supply. That’s exactly what we’re seeing with rising chip stocks.
Nvidia has been a true growth leader in 2021, boasting a year-to-date return of 117.18%, in a rally that got underway in April. The company designs discrete graphics processing units used in applications including gaming, automotive entertainment systems, data centers and others.
The stock is currently pulling back from its November 22 high of $346.47, and finding support at its 50-day moving average.
The fundamentals illustrate why the stock is a favorite this year. Revenue grew at double-digit rates in each of the past eight quarters, while earnings grew at double- or triple-digit rates during that time. Analysts expect the strong growth to continue, with a 74% growth in earnings this year and another 19% next year.
Shares closed Wednesday at $304.59, up $21.22 or 7.49%.
Advanced Micro Devices is another stock that’s retreating from a recent high while successfully testing its 50-day line.
AMD designs microprocessors for consumer electronics as well as the computer industry. It derives the bulk of its revenue from data-center customers, as well as computer manufacturers. It also provides the semiconductors used in popular gaming consoles.
This company, too, has seen stellar earnings and revenue growth. In the past eight quarters, revenue growth ranged from 26% to 99%. Earnings grew at a range between 63% and 300%. That type of growth is a magnet for institutional investors, who pile into stocks with not only good potential, but a proven track record.
As for the potential, that’s evident in Wall Street’s expectations for the stock. Analysts are eyeing earnings of $2.64 per share for the full year, double last year’s earnings. Next year that’s expected to rise another 26% to $3.33 per share.
The stock closed Wednesday at $146.50, up $10.90 or 8.04%.
Qualcomm was a growth leader back in the tech-stock halcyon days of 1999, when the stock essentially went parabolic for the year. It took 20 years for the stock to regain its 1999 highs, but it went on a tear in late 2020 and early 2021.
The stock hit resistance just below $168 in late January and early February before pulling into a nine-month correction. It gapped up 12.73% on November 4, following the company’s quarterly report. Since then, the stock rallied an additional 21%, closing Wednesday at $189.28. That was a gain of $7.30 or 4.01% in the session.
Qualcomm’s revenue growth hasn’t been quite as strong as AMD’s or Nvidia’s, there’s reason to believe better growth may lie ahead.
In mid-November, CEO Cristiano Amon said Qualcomm will expand its offerings to include chips for cars, as well as other industrial and consumer products. The company also raised its revenue forecast.
According to MarketBeat analyst data, the consensus among 25 analysts is that Qualcomm is a “buy.” Analysts have a price target of $184.74 on the stock, representing a 2.49% downside. Remember: That rating applies for the next 12 to 18 months and doesn’t mean the stock is doomed to fall soon.
The stock is currently buyable, but not for much longer if it rallies above resistance at $191.30.
NVIDIA is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.