Bank Of America On AMD, Nvidia, And Intel's 'Processor-Gate'

It’s been a volatile time for Intel Corporation INTC and its key competitors Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA after Intel disclosed two large security issues in its chips. The fallout from the security issues will like continue to impact the market in the near-term, according to Bank of America Merrill Lynch. 

The Analyst

BofA analyst Vivek Arya maintains the following ratings and price targets for popular semiconductor stocks:

• AMD: Buy rating, $18 price target.
• Intel: Buy rating, $49 price target.
• Nvidia: Buy rating, $251 price target.

The Thesis

Investors should not sweat the cyclical peak in semiconductor demand that worries bears, Arya said in a Thursday note. (See the analyst's track record here.)

Bank of America estimates that previous semiconductor cycles have lasted an average of 13 quarters, and said the current cycle is only in quarter seven.

Semiconductor companies have a massive long-term opportunity in the industrial and automotive markets, Arya said. 

“We believe this is an attractive set of well-managed 'new industrial' companies trading at underserved 15-20-percent discount (on EV/FCF metric) to S&P 500 industrials, despite 1.5x faster sales growth potential and despite 1000-bp-plus higher profit margins (36-percent average for this group vs S&P 500 industrials at 22-percent 2018E EBITDA margins)." 

In the near-term, Arya said concerns over Spectre and Meltdown will weigh on Intel and AMD shares, at least until the companies update their 2018 guidance later this month.

For Nvidia, the trifecta of artificial intelligence, gaming and autonomous vehicles gives the stock the most upside potential of the group, Arya said. Buyers should be aware that Nvidia currently trades at an elevated forward PE of around 42x, he said. 

Price Action

Despite the bullish commentary, Nvidia, AMD and Intel all traded lower on Friday. AMD was the laggard of the group, down 1.7 percent in midday trading.

Related Links:

Nvidia, AMD Among Top Semis In 2018, According To Bank Of America

Intel's Potentially Major Security Flaw Boosting AMD, Other Chip Stocks