Bank Of America: AMD, Cavium And Cypress Could All See 50% Upside

Bank of America said in a note on Wednesday Cypress Semiconductor Corporation CY, Cavium Inc CAVM and Advanced Micro Devices, Inc. AMD are all positioned to generate 50+ percent upside potential upside, taking advantage of technology inflexions and a more constructive pricing environment. These two positive aspects were the corollary of the intense consolidation in the past three years, the firm added.

The firm named these three companies as its top mid-cap semis. The firm noted that three companies are recovering from prior missteps, slow-downs and product transitions that created slowdowns and investor skepticism that has still to be corrected.

Analysts Vivek Arya and Adam Gonzalez said they are above-consensus on these companies and have Street-high price objective.

Double-Digit EPS, Revenue Growth Forecast For Cavium

For Cavium, Bank of America forecasts industry-leading 12–15 percent sales growth and 20+ percent earnings per share growth from 2016-2019. The firm is of the view that Cavium's multi-core processor and security design expertise make it the only vendor to challenge large companies such as Broadcom Ltd AVGO and Intel Corporation INTC.

The company also remains poised to take advantage of rapid technology adoption by cloud providers and the coming 5G mobile era, the firm noted. The firm sees $4+ in long-term earnings per share, with the company possessing disruptive products in large total addressable markets.

Bank of America rates Cavium a Buy, with a $85 price objective.

Related Link: With The Mobile Industry Upgrading To 5G, Buy Cavium

Cypress: Compelling Restructuring Situations In Semis

Bank of America views Cypress Semiconductor as one of the most compelling restructuring/turnaround situations in semis. The firm sees the new management team, secular benefits in autos/IoT, restructuring tailwinds that can expand gross margin by 800 basis points and double earnings per share over the next two years as positives.

The analysts see the company leading the USB-C market, which provides a common interface for data, power, accessory and Ethernet. Accordingly, the analysts expect mobile SSNLF, Apple Inc. AAPL) and the PC industry to be early adopters, with other markets such as autos to follow. The company has a $295 million pipeline, the analysts added.

Bank of America estimates 80 cents to $1.50 in phones, 50–80 cents in wall chargers and 25–30 cents in each end of charging cables, while expecting long-term earnings per share of $1.40.

Bank of America has a Buy rating on the shares of Cypress Semiconductor and a $16 price objective.

Gaming, Server: AMD's Focus

Bank of America believes AMD is the only vendor which can challenge Intel in the $30 billion PCs/Servers market and NVIDIA Corporation NVDA in the $20 billion market for graphics processors in gaming and AI. Of these two addressable markets, the firm believes AMD has only 4 percent value share.

The firm is of the view that the Street is still harping on the company's past execution steps and in the process missing the growth potential in its highly competitive product pipeline under a relatively new and focused management team.

Bank of America believes the sales of the Ryzen gaming PC chip and Vega high-end graphics chips, both focusing on the gaming markets to be the next catalysts. In a bull-case scenario, the firm estimates earnings power of $1+.

Bank of America has a Buy rating and a $16.50 price objective for the shares of AMD.

At Last Check

• Cavium was up 0.13 percent at $67.45.
• Cypress Semiconductor was adding 1 percent at $13.57.
• AMD was slipping 3.38 percent at $14.45.