Last week, earnings season reached a crescendo of sorts, and it was a massively out of tune climax. All the tech giants reported, and barring Apple, all faltered badly, weighed down by the tough economic backdrop amidst waning demand and fears of an upcoming full-blown recession.
This week brings with it a plethora of other interesting quarterly statements, with big names in the semiconductor industry readying to deliver their latest financial statements. Like most corners of the market, chip stocks have been hammered this year too with the SOX (the major chip index) showing year-to-date losses of ~40%.
However, Rosenblatt chip expert Hans Mosesmann has been previewing three names in the sector about to deliver the quarter’s financials; all show year-to-date losses but the 5-star analyst thinks all 3 are poised to charge ahead over the coming months.
He should know what he’s talking about; Mosesmann ranks in the top 0.5% of Wall Street analysts, so it’s worth listening to what he has to say.
Lattice Semiconductor (LSCC)
First up, we have Lattice Semiconductor, a company which makes low power, field-programmable gate arrays (FPGAs). FPGAs are ideal for adaptive systems because they are reconfigurable and can be programmed to carry out any digital logic. Lattice has made a deliberate choice to concentrate its efforts on the low-power FPGA industry after working on a number of other products over the previous few years, with a goal of becoming a leader in the field.
Evidently, it’s a plan that has been bearing fruit, as is clear from the last couple of years’ sales trajectory which has been moving in one direction: up.
This was true in the F2Q22 as well, in which the company posted beats on both the top-and bottom-line. In fact, over the past couple of years, Lattice has been beaten top-line forecasts 88% of the time and EPS estimates 100% of the time.
The Q3 results will be announced today (October 31) after the closing bell, with the analysts calling for revenue of $166.27 million – a 26% year-over-year increase – and EPS of $0.44, amounting to a 57.1% y/y uptick.
Mosesmann’s estimates are roughly the same as the Street’s with the analyst believing the company has a strong value proposition.
“We see 3Q22 being driven by continual ramping of new product cycles within Nexus platform, as growth across all markets continues,” Mosesmann explained. “During the call, we will be looking for: 1) Updates on supply chain shortages, 2) Updates on product ramps, and 3) Comments surrounding the ongoing transition into the mid-sized FPGA market.”
Summing up, the analyst wrote: “We see Lattice as uniquely positioned as the only FPGA player innovating in small, and upcoming mid-tier, FPGAs in a new era of AI disruption that requires a combination of programmability, low power, high parallel data-centric workloads, and faster time to market requirements.”
Accordingly, Mosesmann rates LSCC shares a Buy, while his $95 price target makes room for 12-month gains of 95%. (To watch Mosesmann’s track record, click here)
The Rosenblatt analyst’s colleagues mostly agree; one skeptic aside, all 6 other recent ratings are positive, providing this stock with a Strong Buy consensus rating. At $75.17, the average target suggests shares will climb ~55% higher over the one-year period. (See LSCC stock forecast on TipRanks)
Advanced Micro Devices (AMD)
Next up, one of the industry giants, AMD. This chipmaker might be a titan now, but less than a decade ago, the company appeared on the brink of bankruptcy, having failed to turn a profit for years. However, with Lisa Su at the helm, the CEO not only steered the company to safety but helped turn it into the powerhouse it is today, putting it on the same playing field as its once far bigger rivals Nvidia and Intel.
The latter has suffered at the hands of mismanagement and product issues, a situation AMD took advantage of with its superior offerings in the CPU market which have helped it take share.
AMD is also well-known for its processors which are used by gamers across the globe. On the GPU front it has pitted itself against segment leader Nvidia and claims 4 spots on the top 10 fastest GPUs list.
That said, while the real-world share gains have been accompanied by huge stock market strides, 2022 has not been kind to this stock. The shares are down by 58% year-to-date, a turn of events not helped by AMD’s shocker of a preannouncement earlier this month, when the company lowered expectations for the quarter, on account of worsening consumer demand/inventory dynamics.
Ahead of the Q3 print (Tuesday, November 1), as a reflection of the downward revision, Mosesmann expect sales will be “inline” with both his and consensus estimates, which call for a double-digit sequential drop. Nevertheless, the analyst remains resolutely in AMD’s corner and thinks Wall Street is missing the big picture here.
“AMD remains one of our top picks on a likely inflection in share shifts in servers with Genoa EPYC 4 moving the market to 96 cores in 4Q22 and 128 cores in 1H23,” the analyst said. “Intel’s Sapphire Rapids remains unseen in the market and when it does in the coming 1-2 quarters we see core counts topping out at less than 60 cores from current 32-40 cores in Ice Lake. The share shift in the next two years we see as unprecedented and unappreciated by the Street.”
To this end, Mosesmann maintains a Buy rating on AMD shares backed by a $200 price target, implying shares have room for 234% growth over the coming months.
Mosesmann is amongst a majority on Wall Street. 1 Sell and 2 additional Holds are outgunned by 14 Buys, all coalescing to a Moderate Buy consensus rating. The average price target stands at $599.24, suggesting room for a 16.5% uptick over the next 12 months.
Mosesmann is hardly the only analyst to come out bullish for AMD; the stock has 19 Buys vs. 9 Holds and a single Sell, giving it a Moderate Buy consensus rating. The shares are priced at $60.22 and their $95.34 average target suggests room for ~58% appreciation next year. (See AMD stock forecast on TipRanks)
Last but not least is Microchip, a leading manufacturer of microcontrollers and analog semiconductor devices. Its product portfolio includes Flash-IP integrated circuits, FPGAs, digital signal controllers, application development systems for high-volume embedded control applications, radio frequency (RF) devices, and thermal management products, amongst others.
The company’s offerings are used by more than 120,000 customers spread across varied markets such as automotive, industrial, communications, consumer, aerospace and defense, and computing.
The use of microcontrollers, which are effectively miniature computers capable of managing external electrical circuits, has increased steadily over the past few decades. Almost every device now has them, and electric cars utilize even more of them than gas-powered ones do.
Being a dominant player in the industry, the company has reaped the benefits of this trend, as was evident once again in the first quarter of fiscal 2023 (June quarter), when Microchip delivered record revenue ($1.96 billion, up 25.1% year-over-year) and profits, which resulted in EPS of $1.37. Both figures beat Street expectations.
Looking ahead to the upcoming report (Thursday, November 3), Mosesmann expects the company to once again put in a strong performance with sales coming in “slightly above” consensus estimates of up mid-single-digits sequentially, the performance driven by a “strong backlog and capacity improvements, as well as continued momentum in Automotive and Industrial.”
That trend should continue in the December quarter too, with Mosesmann noting where the company stands to gain.
“Pertaining to end-markets, we see continued momentum in Automotive and Industrial, as well as strength in Data Center,” he explained. “In addition, we believe the company is seeing continued strength in bookings, healthy demand, and improved order visibility.”
With all this as backdrop, Mosesmann rates Microchip shares a Buy, backed by a Street-high $125 price target. The implication for investors? Upside of ~102% from current levels.
The Street’s take is overall more subdued; the 14 reviews on file break down as 9 to 5 in favor of Buys over Holds, all culminating in a Moderate Buy consensus rating. Going by the $80.15 average target, the shares will be changing hands for a 30% premium a year from now. (See Microchip stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.