11 favored semiconductor stocks expected to outperform Nvidia over the next year

By Philip van Doorn

Even a well-loved stock can move ahead of its consensus 12-month price target

Nvidia Corp. dominates coverage of the semiconductor industry, and this will continue as long as this company keeps blowing past even its own expectations for sales and profits each quarter. But there are other semiconductor manufacturers that are also growing quickly during this upcycle for the industry.

As shown below, investors who have taken a patient approach to investing in this industry group have fared very well. But some investors will want to push for shorter-term gains by selecting individual stocks. For these investors, it might help to screen an expanded list of semiconductor stocks to see which ones are favored by analysts working for brokerage firms.

For traders: Semiconductor stocks look ripe for a pullback: RenMac

A broad screen of semiconductor stocks

The initial list included 61 companies listed on U.S. exchanges, starting with the 30 in the PHLX Semiconductor Index SOX, which is tracked by the iShares Semiconductor exchange-traded fund SOXX. From there we added 31 more companies in the S&P Composite 1500 Index XX:SP1500 that are in the semiconductor industry, as determined by FactSet, or in the Semiconductors and Semiconductor Equipment Global Industry Classification Standard group. The S&P Composite 1500 is made up of the S&P 500 SPX, the S&P MidCap 400 MID and the S&P Small Cap 600 SML.

We then trimmed the list to 54 companies covered by at least five analysts working for brokerage firms polled by FactSet.

We cut the list further to a dozen companies with at least 75% buy or equivalent ratings among the analysts.

Here they are, sorted by implied 12-month upside potential, based on the consensus price targets:

   Company                                      Ticker   Share buy ratings  June 21 price  Consensus price target  Implied 12-month upside potential  Market cap ($bil) 
   Semtech Corp.                                 SMTC                  85%         $30.14                  $49.64                                65%               $1.9 
   Allegro MicroSystems Inc.                     ALGM                 100%         $27.67                  $35.38                                28%               $5.4 
   Ichor Holdings Ltd.                           ICHR                 100%         $36.62                  $46.60                                27%               $1.2 
   Marvell Technology Inc.                       MRVL                  91%         $71.89                  $89.75                                25%              $62.2 
   Advanced Micro Devices Inc.                   AMD                   80%        $161.23                 $190.02                                18%             $260.6 
   SiTime Corp.                                  SITM                  86%        $118.60                 $139.17                                17%               $2.7 
   Onto Innovation Inc.                          ONTO                  83%        $216.40                 $253.00                                17%              $10.7 
   Micron Technology Inc.                         MU                   89%        $139.54                 $159.17                                14%             $154.5 
   Broadcom Inc.                                 AVGO                  86%      $1,658.63               $1,879.79                                13%             $772.1 
   First Solar Inc.                              FSLR                  78%        $258.87                 $283.76                                10%              $27.7 
   Taiwan Semiconductor Manufacturing Co. ADR    TSM                   95%        $173.96                 $176.73                                 2%             $902.3 
   Nvidia Corp.                                  NVDA                  90%        $126.57                 $128.33                                 1%           $3,113.6 
                                                                                                                                                        Source: FactSet 

Despite having 90% buy or equivalent ratings, the consensus price target for Nvidia (NVDA) is only 1% higher than Friday's closing price.

Here is recent coverage of some calls by analysts related to stocks listed above:

Why Nvidia's bonds are a safe-haven alternative to its high-flying stockApple offers a bullish lesson for Nvidia, even as the chip stock dipsMicron's stock could wield 40% upside - even though earnings may not be a driverHere's why AMD's stock was just dubbed a top pickBroadcom just keeps getting bigger as it's deemed best AI stock besides Nvidia

Now let's take a look at how valuations for the group of 12 most favored semiconductor stocks have changed. Here are comparisons of forward price-to-earnings and price-to-sales ratios as of Friday's close and a year earlier. Ratios for the iShares Semiconductor ETF and the SPDR S&P 500 ETF Trust SPY are at the bottom.

   Company                                      Ticker   Forward P/E  Forward P/E one year ago  Forward price/ sales  Forward price/ sales one year ago  12-month price change through June 21 
   Semtech Corp.                                 SMTC           28.1                      26.6                   2.0                                1.5                                    26% 
   Allegro MicroSystems Inc.                     ALGM           45.0                      27.9                   6.3                                7.2                                   -33% 
   Ichor Holdings Ltd.                           ICHR           35.6                      33.2                   1.3                                1.2                                     1% 
   Marvell Technology Inc.                       MRVL           40.0                      32.0                  10.2                                8.6                                    22% 
   Advanced Micro Devices Inc.                   AMD            35.9                      32.3                   9.0                                7.2                                    44% 
   SiTime Corp.                                  SITM          107.9                     221.3                  13.1                               15.0                                     1% 
   Onto Innovation Inc.                          ONTO           37.9                      25.8                  10.6                                6.0                                   104% 
   Micron Technology Inc.                         MU            18.6                       N/A                   4.4                                3.6                                   112% 
   Broadcom Inc.                                 AVGO           29.6                      19.2                  13.6                                9.4                                    96% 
   First Solar Inc.                              FSLR           15.1                      18.8                   5.5                                4.9                                    40% 
   Taiwan Semiconductor Manufacturing Co. ADR    TSM            25.4                      17.7                   8.4                                6.2                                    71% 
   Nvidia Corp.                                  NVDA           41.4                      50.4                  22.9                               22.9                                   194% 
   iShares Semiconductor ETF                     SOXX           29.5                      22.8                   7.1                                5.2                                    53% 
   SPDR S&P 500 ETF Trust                        SPY            21.1                      18.9                   2.8                                2.4                                    25% 
                                                                                                                                                                               Source: FactSet 

Looking first to the bottom of the table, the past year has been one of impressive performance for the S&P 500, with Nvidia and other technology stocks having an outsize effect. SOXX has more than doubled the S&P 500's price change over the past 12 months.

Keep in mind that P/E ratios can be distorted if a company is only marginally profitable or is focusing so much on growing its business that little revenue flows through to the bottom line. For Micron Technology Inc. (MU), there was no forward P/E a year ago, because at that time the rolling 12-month earnings-per-share estimate was negative.

It is interesting to see that Nvidia's forward P/E is less than it was a year ago, even though the share price has nearly tripled. This shows that the rolling 12-month EPS estimate has risen even more quickly than the share price. Moving to forward price-to-sales ratios, Nvidia's is the highest among the S&P 500 - hefty expectations are baked into that share price. And Nvidia's price-to-sales ratio is rather close to its P/E, showing how high the profit margins are for its graphics processing units, or GPUs. The company continues to dominate this part of the industry, as data centers install the units as quickly as they can to support corporate clients' efforts to create new products and services making use of generative artificial intelligence.

More on rising stocks with declining P/E ratios: Nine hot stocks, including Nvidia, that have become more attractive by this critical metric

Looking further ahead

Over the long term, a "beat-and-raise" pattern can support rising share prices. Analysts estimate companies' quarterly revenue and profit, and after companies announce their results, which might include changing their own guidance for coming quarters, analysts will follow by updating their estimates.

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06-26-24 0540ET

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