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Micron's Blowout Earnings Drive Chipmakers: 5 Top Picks

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Micron Technology, Inc. (MU - Free Report) reported stellar sales and profits in the fiscal third-quarter 2018, fueled by high demand for chips that store data in mobile devices and components. The chipmaker’s upbeat performance once again crushed all doubts surrounding the stock and restored faith in the semiconductor market amid trade war concerns.

Thus, investing in solid chip stocks that display this kind of resilience seems like a foolproof plan.

Micron Assures That Chip Demand Remains High Despite Odds

Micron, yet again, quashed all doubts surrounding the company’s growth prospects. Its sales decline in China with the absence of ZTE due to a U.S. Commerce Department ban and China’s close watch on higher chip prices were supposed to be a huge setback.

But the U.S. maker of memory chips registered solid gains in profits and revenues and gave a strong forecast. This shows that demand for memory chips will continue to improve along with higher prices of these components.

Micron’s chief executive Sanjay Mehrotra aptly stated that they “see robust demand drivers for DRAM (dynamic random access memory) whether in the data center or mobile or graphics.” He added that the current trends in artificial intelligence and new high-resolution imaging will drive the requirement for more and more memory.

Escalating trade tensions between United States and China, by the way, is one of the greatest risks faced by chipmakers. After all, semiconductor companies generate highest revenues from the Asian nation at 52%, as per Morgan Stanley research estimates.

Morgan Stanley, however, did mention that semiconductors are components of products that are sold elsewhere. Thus, the adverse effect of high revenue exposure to China “is not as meaningful” as it can be for other industries. Lest we forget, Trump has time and again showed that his approach toward tariffs is all bark and no bite.

Micron’s Blockbuster Performance

Coming back to Micron’s performance, the chipmaker’s fiscal third-quarter 2018 profits more than doubled from the year-ago levels, while sales surged 40%. The chipmakers net income of $3.82 billion, or $3.10 per share, on sales of $7.8 billion, was up from $5.57 billion in the year-ago quarter.

The Boise, ID-based company’s chief financial officer Dave Zinsner forecast fiscal fourth-quarter adjusted earnings of $3.23 to $3.37 a share on revenues of $8 billion to $8.4 billion, better than analysts’ average projection of $3.16 a share on sales of $8.02 billion.

Shares gained as much as 3% as soon as Zinsner made the forecast. The company’s expected growth rate for the current year is 132.5% compared with the broader S&P 500’s estimated rally of 24.5%. In fact, Micron’s shares have been on a tear, soaring 84.2% in a year’s time, way higher than the S&P’s gain of 14%.

Micron is a Screaming Buy

With its share prices climbing north on broad and sustained demand for its products, Micron has earned a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

To top it, nine earnings estimates moved north over the last 60 days, while none moved south for the current year. The Zacks Consensus Estimate for earnings jumped 4.9% in the same period.

Buy 4 More Chipmakers for Outstanding Returns

But, why just buy Micron? Semiconductor chips are very much in demand largely due to gaming, emergence of Internet-of-Things (IoT) and automation. E-sports, a multiplayer video game for professional gamers, needs thousands of semiconductor chips for production, while chips are an essential part of crypto mining as these provide the processing power needed for decoding blockchain algorithms.

Banking on such broad-based bullish trends, here we present four other chipmakers that promise stellar returns in the near future. These stocks also flaunt a Zacks Rank #1.

NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. In the last 60 days, 12 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings climbed 12.5% in the same period. The company’s expected earnings growth rate for the current year is 61.2% compared with the Semiconductor - General industry’s estimated rally of 22.1%.

Texas Instruments Incorporated (TXN - Free Report) designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. In the last 60 days, 13 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings jumped 10.3% in the same period. The company’s expected earnings growth rate for the current year is 27.8% compared with the Semiconductor - General industry’s estimated rally of 22.1%.

Diodes Incorporated (DIOD - Free Report) designs, manufactures, and supplies application-specific standard products in the discrete, logic, and analog and mixed semiconductor markets. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings increased 2.6% in the same period. The company’s expected earnings growth rate for the current year is nearly 46% compared with the Electronics - Semiconductors industry’s estimated rally of 9.2%.

Silicon Laboratories Inc. (SLAB - Free Report) , a fabless semiconductor company, designs, develops, and markets mixed-signal integrated circuits (ICs). In the last 60 days, four earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings advanced 4.3% in the same period. The company’s expected earnings growth rate for the current year is 10.8% compared with the Semiconductor - Analog and Mixed industry’s estimated rally of 4.4%.

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