The new year is shaping up to be a “major recovery year” for chip stocks and several big names are poised to benefit the most, wrote a Piper Sandler analyst in a note on Wednesday morning.
Analyst Harsh Kumar cited Gartner’s expectations that the chip market will grow roughly 12.5% in 2020 following a 12% decline in 2019 due largely to trade issues.
“We see a strong bounce back in the automotive market and a slight pick-up in the industrial market, along with the data center market returning to secular growth levels,” Kumar wrote. “We also expect 5G to drive substantial growth within the wireless infrastructure and mobile markets.”
Although chip stocks staged a strong rally in 2019, Kumar said that he sees earnings growth in the sector still being driven in 2020 by a strong U.S. economy, a recovering Chinese economy and significant financial leverage being exercised by companies.
“For MACOM, we believe the turnaround still has a lot of legs left. The recent restructuring should drive improved profitability, and both near-and-long-term product cycles should return the company to high levels of growth,” Kumar wrote. “At NXP, we feel the recovery in the automotive market should provide tailwinds. In addition, we see leverage in the company’s model as topline growth accelerates, leading to margin expansion and high free cash flow generation. For NVIDIA, we think the company’s gaming and data center segments are back and should be firing on all cylinders.”
Kumar raised his price targets on Macom from $29 to $32, on NXP from $140 to $150 and on Nvidia from $250 to $275.
On Thursday morning, shares of Macom were rising 0.9% to 27.61, NXP was down 0.6% to $131.97 and Nvidia was down 0.4% to $246.34.