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Buy These 4 Semiconductor Stocks on Higher Data Center Demand

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The work-and-learn-from-home necessity is stoking demand for cloud storage. Moreover, the social-distancing trend boosted the usage of online services globally. This compelled data-center operators to enhance their cloud-storage capacities in a bid to accommodate skyrocketing demand for cloud services, which is fueling demand for data-center chips.

Further, a momentum in high-performance computing (HPC) applications, gaming, wearables, drones and VR/AR devices due to the coronavirus crisis is driving massive growth in the semiconductor space.

Additionally, evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm to 5 nm and even 3 nm technology is opening new business avenues. The accelerated deployment of 5G technology is anticipated to spur further growth.

Notably, demand for microchips is getting a boost from the 5G boom in Europe and some Asian countries like China and Singapore.

Besides, improvements in DRAM and NAND pricing are acting as tailwinds for semiconductor stocks catering to the memory market.

Markedly, a spike in the worldwide sales of semiconductors buoys confidence. Global semiconductor sales reflected both a month-over-month and a year-over-year increase in January, according to latest data from the Semiconductor Industry Association (or SIA).

The SIA announced on Mar 1 that global semiconductor sales reached $40 billion in January 2021, up 13.2% year over year, driven by rise in semiconductor production to meet pent-up demand and ease the ongoing chip shortage that is persistently affecting the auto sector and others. Also, sales inched up 1% beginning December 2020.

In fact, per IDC data, the global semiconductor market is projected to hit $476 billion in 2021, up 7.7% on a year-over-year basis, based on gradual recovery as economies open up following dissemination of COVID-19 vaccines.

The optimism surrounding semiconductor stocks can also be ascertained by the robust performance of iShares PHLX Semiconductor ETF (SOXX) in the past year, which has rallied 123.9% compared with the SPDR S&P 500 ETF’s (SPY) rise of 74.7%. Further, SPDR S&P Semiconductor ETF (XSD), which tracks the S&P Semiconductor Select Industry Index, has gained 146.2% in the past year.

Per Technavio report, the data center market has the potential to grow $519.34 billion during the 2021-2025 period, seeing a CAGR of 21%, driven by the growing clout of cloud services and digitization amid the coronavirus-led work-from-home trend. Further, an increasing adoption of multi-cloud and network upgrade to support 5G is fueling growth.

Considering growth prospects of the chip makers driven by data center boom and HPC push, it makes sense to invest for long-term gains. Here we shortlisted four stocks that are incredible to invest in at the moment.

One Year Price Performance

4 Best Bets

Micron (MU - Free Report) is gaining from solid memory-chip demand among data-center operators as more and more workers and students work and learn from home amid coronavirus-led social-distancing measures being adopted globally.

Furthermore, it is well poised to benefit from the resurgence in DRAM demand, backed by a progress in customer inventory adjustments in the cloud, graphics and the PC markets. Increasing mix of high-value solutions, enhancement in customer engagement and improvement in cost structure are positives.

Growing demand from cloud-computing providers and acceleration in 5G adoption are also contributing to the performance of this currently Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digitization across industries, increased uptake of cloud computing and services, and the integration of AI and machine learnings are likely to fuel demand for Micron’s chips.

The Zacks Consensus Estimate for fiscal 2021 earnings has been revised 17.1% upward in 30 days’ time to $4.52 per share, suggesting 59.7% growth from the figure reported in the year-ago quarter.

NVIDIA (NVDA - Free Report) is benefiting from the pandemic-induced work-from-home and learn-at-home wave. The company is poised to gain from a surge in hyperscale demand, which is a tailwind for this presently Zacks Rank #2 (Buy) company’s Data Center business.

Further, the Arm acquisition is expected to aid NVIDIA in offering end-to-end ecosystem of technology across the data center, IoT, autonomous vehicles and mobile domains. NVIDIA is now well positioned to upscale its inference technology, drivers and accelerators by utilizing Arm’s sturdy architecture and chip designs.

The Zacks Consensus Estimate for fiscal 2022 earnings has moved 15.1% north in the past 30 days to $13.37 per share. The figure indicates growth of 33.7% on a year-over-year basis.

Analog Devices (ADI - Free Report) offers solid power protection, optical network control, sensor and connectivity infrastructure, and DC-DC power conversion solutions utilized in high density servers, storage and networking equipment, which enable data center operators to bolster efficiency.

Further, growing power design wins are major positives for this currently Zacks Rank #2 company. Notably, the company is acquiring Maxim Integrated (MXIM - Free Report) . The deal is expected to drive Analog Devices’ growth across several emerging growth markets.

Additionally, rising acceptance of advanced radio systems in 5G infrastructures is bracing the company’s communication business. Management also remains optimistic about growth opportunities related to 5G.

The consensus mark of $6.00 per share for its fiscal 2021 earnings has moved 1.4% north over the past 30 days. The figure indicates growth of 22.2% on a year-over-year basis.

Intel’s (INTC - Free Report) expertise in PCIe Express Gen 4, next-generation Optane Persistent Memory and SGX security enhancements poise it well to grow in the datacenter vertical.

Infusion of AI favors growth prospects in data center training and is enhancing strength of Intel Xeon inference capabilities. Markedly, Amazon AMZN announced EC2 instances that will utilize the chipmaker’s Habana Gaudi AI training accelerators.

Moreover, investments in enhancing the networking workload convergence on Intel silicon yielded results. In 2020, the chipmaker’s Radio Access Network delivered advanced Xeon SoCs, FPGAs and custom solutions for 5G base station designs and helped the company attain its 40% share target, two years ahead of its original goal.

Also, management is optimistic about the growing popularity of latest Sapphire Rapids processors for the data center that leverages better SuperFin process technology and various architectural improvements. Further, the chipmaker intends to upscale production of Sapphire Rapids by the end of 2021, which is a boon for this currently Zacks #2 Ranked company.

The Zacks Consensus Estimate for 2021 earnings has been raised 6.2% in the past 60 days to $4.95 per share.

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