The rally from the market’s March 23 lows continues as Wall Street looks beyond the coronavirus lockdowns to the eventual recovery, which seems more realistic now that economies around the world are slowly starting to reopen.
The stock market comeback is well ahead of any actual economic resurgence. That said, many of the tech firms that have helped drive the climb have proven more resilient to the pandemic than the likes of transportation, retail, energy & oil, and more, which makes it more reasonable.
The stay-at-home stocks such as Netflix NFLX and Zoom ZM have outperformed, as have the blue-chip like Amazon AMZN, Microsoft MSFT, Facebook FB, Apple AAPL, and more. And it’s not hard to imagine that the broader tech space that drove the historic bull market, which the coronavirus ended, will be the star of the near-term comeback and the next decade.
The semiconductor industry has and looks poised to continue to help underpin the technological revolution. With this in mind, we screened for strong chip stocks that investors might want to consider buying for the coronavirus rally and beyond.
Nvidia is a GPU giant that has proven for years its strength in the booming gaming market and its more recent expansion into data centers and cloud computing has really grabbed Wall Street’s full attention. NVDA topped our Q1 estimates on May 21, with revenue up 39%, driven by an 80% climb in data center revenue, which crossed the $1 billion threshold for the first time. And NVDA’s new Ampere architecture is set to play a key role within the AI-focused chips and cloud computing.
Back on April 27, Nvidia closed its $7 billion acquisition—its largest ever—of Mellanox Technologies to help bolster its data center business and more. Nvidia’s earnings estimates have turned far more positive since its Q1 beats to help it earn a Zacks Rank #2 (Buy) right now. Our Zacks estimates call for its revenue to jump 42% and 30%, respectively in Q2 and full-year fiscal 2021. Meanwhile, NVDA’s adjusted earnings are projected to surge 54% and 34% over this same stretch.
NVDA shares have surged 44% in 2020, against its industry’s 3% pop. And a recent pullback has Nvidia resting about 5% off its new highs. Along with this climb has come a stretched valuation picture. But Wall Street might continue to scoop up stocks that can grow in this environment, especially ones with longer-term potential. On top of that, Nvidia pays a dividend, is part of a highly-ranked Zacks industry, and boasts a strong balance sheet.
Applied Materials AMAT
Applied Materials is a leading semiconductor equipment firm that stands to benefit from the growth of big-data, artificial intelligence, and other new technologies. And AMAT is focused on figuring out what’s next as classic Moore's law scaling slows. The company did fall slightly short of our Q2 fiscal 2020 estimates in mid-May. Still, its revenue popped 12% and its adjusted EPS figure jumped 27%.
Peeking ahead, AMAT’s Q3 sales are projected to jump 18%, with its full-year revenue projected to climb 14%. Meanwhile, its adjusted earnings are expected to climb 28% in Q3 and over 25% this year. CEO Gary Dickerson also helped boost Wall Street confidence about its pandemic outlook, saying that “while the situation remains fluid, based on the visibility we have today, our supply chain is recovering, and underlying demand for our semiconductor equipment and services remains robust.”
AMAT, which is a Zacks Rank #2 (Buy) right now, has seen its stock price soar 40% since the market’s March 23 lows. Despite this recent run, AMAT stock rests 15% below its 52-week highs. Applied Materials is also trading at a discount compared to its industry in terms of forward 12-month sales, at 2.9X vs. 6.6X. And AMAT’s 1.56% dividend yield tops its highly-ranked industry’s 1.23% average.
Inphi Corporation IPHI
Inphi makes semiconductor components and optical subsystems for networking OEMs, as well as cloud computing and telecom companies. IPHI is a leader in data movement interconnects between and inside data centers and helps “move big data fast, around the globe.” Inphi’s Q1 results impressed Wall Street on May 7, with revenue up 70%. Higher demand for cloud and telecom products helped drive sales, as did the inclusion of eSilicon, which it officially purchased in January.
Inphi’s record top-line growth came on top of the year-ago period’s 37% expansion. The firm was already benefiting from a data center boom, the transition to 5G, and more. And CEO Ford Tamer expects the “significant paradigm shifts” caused by the coronavirus, from remote work to e-commerce, might encourage “further acceleration of bandwidth upgrades.” IPHI shares surged after its release, with the stock now up over 60% in 2020 and 250% in the past two years.
IPHI's strong earnings revision activity helps it earn a Zacks Rank #2 (Buy). Looking ahead, our Zacks estimates call for Inphi’s adjusted FY20 earnings to surge 66%, on 66% higher revenue. The Santa Clara, California-based firm is projected to follow up this growth with double-digit sales and earnings growth in FY21.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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