Nvidia stock soared 125% in 2021, but the shares are down 9% so far in 2022.
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Tech stocks are tearing back. The Nasdaq Composite index snapped its four-day losing streak Monday—which brought one of the worst starts to a year in more than a decade—and was poised to keep climbing Tuesday.
Analysts see the coming quarterly earnings season and its associated stream of corporate guidance as crucial for tech stocks as Wall Street considers a bullish stance on the sector. Especially critical: How companies are dealing with the global chip shortage, and whether the world’s thirst for semiconductors will moderate in 2022.
Investors will have to wait a few weeks to get the full picture. For now, the chip sector itself looks good—and Bank of America is upbeat on some key stocks, including Nvidia (ticker: NVDA). It’s more cautious on Intel (INTC).
“We remain bullish on semis—the new ‘oil’ of the rapidly digitizing global economy,” wrote a team at BofA led by analyst Vivek Arya. “Despite the bumpiness, we see a worthwhile 2022 setup given above-trend 4%+ global GDP growth driving above-trend chip sales; underappreciated profitability; and multiple thematic levers.”
But expect volatility ahead. Arya and his team see macro factors like inflation and rising interest rates, as well as geopolitics and the prospect of more Covid-19 lockdowns, enhancing volatility.
BofA expects to see 13% year-over-year growth in semiconductor industry sales in 2022, led by 21% rise in memory chips. And companies that supply the industry—the wafer fab equipment groups—are on track for 16% growth.
Bank of America’s top themes in semiconductors are in cloud computing, chips for the automotive sector, and companies in wafer fab set to benefit from increased capital expenditures across the industry.
The analysts’ No. 1 stock pick in semiconductors is Nvidia. Industry supplier KLA (KLAC) is another favorite alongside Micron Technology (MU) in memory, ON Semiconductor (ON) among small and mid-caps, and GlobalFoundries (GFS) for foundries. BofA sees a less rosy picture for Intel, which they rate at Underperform given strategic and competitive risks.
“Nvidia’s unique combination of highly leverageable graphics silicon, software, scale, and systems expertise position it at the forefront of some of the largest and fastest growth markets in tech including cloud computing/AI, gaming, edge processing, metaverse, and autonomous and electric vehicles,” Arya and the group at BofA wrore in their report.
They see Nvidia’s sales in 2022 growing 25% to 30% year over year, compared to consensus of 19%, though highlight that the main pushback on the stock is likely to come from its premium valuation. “But we believe it is well justified by Nvidia’s first mover advantage, with a nearly impossible to duplicate franchise,” the analysts said.
Shares in Nvidia soared 125% in 2021 but have declined more than 9% so far this year. The average target price on the stock among the dozens of analysts whose estimates are recorded in FactSet data is $342.40. That implies around 25% upside from Monday’s closing price.
Analysts at investment bank Needham, who rate Nvidia at Buy with a target price of $400, said in a note Tuesday that they see opportunities for the company especially across gaming, data centers, automotive, and the metaverse.
While demand for its chips has been outstripping supply, Needham—after hosting Nvidia’s chief financial officer, Colette Kress, at a conference—said the company is striking an upbeat tone on capacity.
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