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Raymond James: Buy 2 Chip Giants Now (And Avoid 1)
Semiconductors are one of the most important industries in the modern world, enabling so much of what we rely on or what we take for granted: internet access, high-speed computers with high-speed memory, even the thermostats that control our air conditioning – that doesn’t technically exist Semiconductor chips used. The global semiconductor chip market was valued at over $ 513 billion in 2019, and despite the worst of the pandemic, the chip sector surged to $ 726 billion in 2020. This market is based on an almost unlimited customer base. It is estimated that 2.5 billion people have at least one smartphone. That’s 1: 3 of the total world population, enough to ensure that the demand for semiconductor chips never fades. With that in mind, Raymond James analyst Chris Caso sees two chip giants poised to turn a profit this year – but one that investors should avoid. Let’s take a closer look. Advanced Micro Devices (AMD) The first chip inventory we’ll look at, AMD, is among the top 20 top-selling chip manufacturers in the world. The company ranked fifteenth last year with total sales of $ 9.76 billion. That return on sales increased 45% from 2019 when AMD was in eighteenth place. AMD’s position in the industry is based on high quality products such as microprocessors, motherboard chipsets and graphics processors. AMD’s Ryzen Mobile 4000 chip was the first 7nm x86 processor on the market. The chip manufacturing company had a solid second half of 2020. Third and fourth quarter revenue quickly rebounded from the first half decline and surged above 2019 levels. Fourth quarter earnings skyrocketed, rising from 32 cents per share in the third quarter to an impressive $ 1.45 per share. Full-year 2020 earnings were $ 2.06, up from 30 cents in 2019. The strong second half brought full year revenue to a company record due to growing demand in the PC, gaming and data center markets. AMD’s prospects have drawn Chris Caso from Raymond James, who compares the company positively to competitor Intel. “We have been using the pullback since the beginning of the year to get involved with AMD. We anticipate this will be a mundane winner as we believe this is a permanent technical advantage over Intel. We believe the stock’s decline was driven by improved sentiment that Intel will solve its manufacturing challenges, which will reverse AMD’s successes. We take the other side of that view, “noted the five-star analyst. Caso continued,” With Intel’s commitment to in-house manufacturing, we believe it is unlikely that Intel will ever regain a transistor advantage over AMD and current roadmaps You are sure to have an advantage for AMD / TSMC until at least 2024. In the meantime, we think the street numbers are too low for both servers and consoles, around $ 3.00. “Consistent with this outlook, Caso initiated coverage of AMD with an Outperform (ie Buy) rating and a target price of $ 100 to suggest 23% upside for a year. (Click to view Caso’s track record You here.) Raymond James’ view is not a bullish outlier. AMD posted 13 positive valuations, partially offset by 5 holds and 1 sell, making the analyst consensus rating a moderate buy. The stock comes in at 81.11 USD sold, and their average target price of USD 104.44 implies an uptrend of ~ 29% for the next 12 months. (See AMD stock analysis on TipRanks.) Nvidia Corporation (NVDA) Next up, Nvidia is another giant in the chip industry Like AMD, Nvidia is slowly climbing the rankings; based on total sales, the company was ranked number 10 in 2019 and number 8 in 2020. Nvidia sales amounted to sic h last year to more than $ 16 billion, up 53% over the previous year. Nvidia drove its success by combining memory chips – which have a strong market in the data center space – and graphics processors, which are popular with both hardcore gamers and professional graphic designers. For the final quarter, the fourth quarter of fiscal 2021 that ended December 31, Nvidia reported $ 5 billion in revenue, a company record, and year-over-year growth of 61%. Earnings per share rose from $ 1.53 in the previous fourth quarter to $ 2.31 in the current press, up 51%. The numbers for the full year were strong; Revenue of $ 16.68 billion was a record, and earnings per share were $ 6.90, 53% higher than last year. Management noted the strength of the data center segment, but also indicated that Nvidia has a growing AI business. The company generates between 5% and 10% of its total sales in the automotive market, and more than half of that comes from AI in the autonomous vehicle niche. Raymond James’ Chris Caso notes this in his report, in which he improves his stance on the NVDA. “Our call isn’t exactly new as we’ve been positive about NVDA for some time. Rather, our appeal should express our conviction in the short and long term. In the short term, we expect NVDA results to be more supply-driven than demand-driven given the widespread shortages – and we expect incremental supply over the course of the year…. Our longer-term belief is based on the fact that NVDA gets more shots on goal than anyone else in our coverage, and their success in AI has earned them a permanent place at the table in both hyperscale and enterprise computing, “said Caso. Caso increases its stance from Outperform to Strong Buy and sets a price target of $ 750. At the current level, this indicates an upward trend of 17% for a year. The strong appreciation of NVDA shares over the past 12 months (115%) has brought the share price close to the average target price. The shares sell for $ 614.47 with an average target of $ 670.20 indicating 9% growth. Still, the stock holds a strong buy consensus rating based on 22 buys and 4 holds over the past few weeks. (See NVDA stock analysis on TipRanks) Intel Corporation (INTC) The third stock we look at, Intel, is the one Raymond James should avoid. This may not seem intuitive. Intel is the world’s largest manufacturer of semiconductor chips by sales, with annual sales of more than $ 77 billion last year and a leading position in a market of over $ 720 billion. Why does Caso advise caution here? “Intel’s stocks have risen lately as they are optimistic that the new leadership of their very capable new CEO will enable them to reverse their manufacturing problems and return to their former dominance. Our underperform rating reflects not only the risk that Intel will fail to achieve this goal, but also the pain they are likely to suffer in pursuing that goal in terms of investments, lost market share and a changing landscape in the data center that the Industry will be less dependent on Intel, “said Caso. The analyst added,” In addition, we are concerned that demand in the PC market, on which Intel remains heavily dependent, has been dragged forward significantly due to the pandemic and expect a possible mean reversal – which unfortunately can occur precisely when Intel needs to increase investments. “As already mentioned, Caso rates INTC as underperform (ie sell) and does not set a price target. All in all, the market’s current view of INTC is mixed, indicating uncertainty about its outlook. The stock has a hold analyst consensus rating based on 12 buys, 10 holds, and 8 sales. The target price of $ 67.68 suggests modest upside potential of nearly 6%. (See INTC stock analysis on TipRanks.) To find good chip ideas for stock trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, ‘a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.