Monday, March 4, 2024

Semiconductor sales grow; acceleration is in the forecast

Key Points

  • The SIA data shows semiconductor sales returned to growth in Q4 2023. 
  • The outlook in 2024 is for double-digit revenue growth led by AI. 
  • These are the top stocks in the best position to capture gains and deliver shareholder value in 2024. 
  • 5 stocks we like better than Micron Technology

Two primary themes were present in semiconductor markets in 2023: AI and normalization. For some, like NVIDIA NASDAQ: NVDA, the AI boom led to wicked growth and skyrocketing share prices, while for others, the story is different. Names like Micron Technology NASDAQ: MU and Advanced Micro Devices NASDAQ: AMD, a dual-story narrative, oversupply, supply gluts, and end-market inventory rundowns weighed on the results. Through it all, there was an expectation for market normalization that gained momentum in the back half of 2023, helping to lift all semiconductor stocks by year-end and has now been confirmed by the data. 

The Semiconductor Industry Association, or SIA, representing 99% of domestic and more than 65% of foreign manufacturers, released its November sales data, and the numbers are good. The association says global chip sales increased by 5.3% in November, and momentum was building. This is the first increase in sales in over a year, a telling indicator. Because growth is expected to accelerate in 2024, the odds are high this won’t be the last good news regarding sales. 

The outlook for 2024 is mixed. The SIA forecasts sales growth in the mid-teens, while others expect much stronger growth. International Data Corporation, IDC, forecasts growth above 20%, which may be low. 

AI will be the driving force, and NVIDIA won’t be the only benefactor. It is expected to grow revenue by 55% in 2024 and will not fill global demand alone. That leaves room for competitors like Advanced Micro Devices and Intel NASDAQ: INTC to ride the AI wave and gain a share in the cloud/AI that NVIDIA may never regain. 

NVIDIA is the analysts’ top choice

NVIDIA is the analysts’ top choice, with more active coverage and positive revisions than any other semiconductor stock in the back half 2023. The Moderate Buy consensus sentiment has been steady for the last twelve months, but the price target revisions, initiated coverage and reiterated ratings were enough to get the stock on Marketbeat’s Most Upraded, Top Rated, and Most Followed stocks list. 

Analysts’ revisions support the uptrend in NVIDIA and have risen nearly 200% in the last year. The bad news is that consensus is only 9% above the current action; the good news is that it lags recent activity by a wide margin, and the stock is moving higher. NVIDIA reports in early February and is expected to post a 230% increase in YOY revenue, which may be shy, given the trends. 

NVDA stock chart

Micron to lead memory-chip makers in a 2024 rebound

Micron is the 2nd most active stock regarding analysts and their revisions. Marketbeat tracks 24 analysts with ratings, and their consensus is a Moderate Buy. Again, the consensus price target implies a relatively low 15% upside but lags the recent action by a fair margin. The most recent action includes a double-upgrade to Overweight by Piper Sandler at the start of the New Year, which includes an above-consensus target. 

Micron is expected to post a 45% increase in YOY earnings for FQ2/CQ4 when it reports in early March. Losses are expected to continue, but profitability will return before the end of the fiscal year. Gains will be made in all end markets as normalization becomes a secular upgrade cycle driven by AI, a memory-hungry application. Revenue is also expected to grow above 40% next year. 

Micron Stock chart

Intel: turnaround gains traction with AI in the mix

Intel is a multifaceted story that hinges on CEO Patrick Gelsinger. His turnaround and refocus efforts have the company on track to return to growth aided by new business and AI. Intel is leaning into foundry services and will be part of the 6.5% capacity growth expected for the industry this year. It is also a competitor for NVIDIA in the data center and cloud industries with its recently announced Gaudi upgrade. 

Intel is also a competitor for Advanced Micro Devices, working hard and fast to bring AI to the edge. Analysts rate this stock a Hold, which makes it one of the lowest-rated semiconductor stocks, but a recent string of upgrades and positive revisions have the stock in rally mode and well above the current consensus. 

Intel stock chart

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