Nvidia, Marvell, Monolithic Are Oppenheimer's Top Picks Ahead Of Semiconductor Earnings

The unfolding first-quarter reporting season is fraught with a lot of uncertainties from the COVID-19 pandemic.

With chip companies expected to start reporting earnings this month, an analyst at Oppenheimer previewed what could be in store for the companies in its coverage universe.

The Semiconductor Analyst

Oppenheimer analyst Rick Schafer named NVIDIA Corporation NVDA, Marvell Technology Group Ltd. MRVL and Monolithic Power Systems, Inc. MPWR as his top picks.

The analyst has the following ratings and price targets for his top picks:

• Nvidia: Outperform/$350
• Marvell: Outperform/$30
• Monolithic: Outperform/$200

The Semiconductor Thesis

As the COVID-19 pandemic remains dynamic, there is likely to be near-term uncertainty for most semiconductor companies, Schafer said in a note. (See his track record here.)

Supply-side concerns in China and Asia have largely abated, with labor recovering and manufacturing returning to normal in the second quarter, the analyst said. 

The concerns are now around demand as worldwide shutdowns shift spending patterns, he said. 

The coronavirus has disrupted what could have been a cyclical recovery in 2020 following a 12% drop in 2019, Schafer said. 

See also: Why BofA Says AMD, Nvidia Are High-Quality, High-Beta Stocks In A Volatile Market

Mixed End Market Signals

With automotive production nearing a standstill, Schafer forecast a low-single digit decline in semiconductor auto revenues if the seasonally adjusted annual rate of auto sales declines 10%. If the SAAR remains flat, increasing semiconductor content in cars could support high-single-digit growth, the analyst said. 

The prospects for the data center and cloud segments remaini strong and the most insulated, given an increase in data traffic due to working from home, he said. Schafer said he expects data center and cloud spending to cool later this year or early 2021 as hyperscalers digest new capacity.

The analyst estimates mid-single-digit growth in server units in 2020, with Advanced Micro Devices, Inc. AMD continuing to gain share from Intel Corporation's INTC delayed 10nm server CPU.

Nvidia is expected to benefit from an acceleration in AI-accelerator attach, he said.

Oppenheimer is expecting a 10% year-over-year decline in smartphone unit shipments due to a decline in 4G smartphones and a potential delay in the iPhone 12 launch.

The firm sees a downward bias to semiconductor estimates due to an acceleration in order cancellations into the summer. Data center, cloud and 5G RAN should remain relatively resilient, Schafer said. 

Oppenheimer likes Nvidia, Marvell and Monolithic Power for their structural growth, but sees risk to smartphone names and analog semis, the analyst said. 

Semiconductor Price Action

The iShares S&P NA Tec. Semi. Idx. Fd. SOXX was up 0.78% at $231.40 at the close Friday.

Related Link: Despite Near-Term Volatility, Nvidia Analyst Remains Bullish On Data Center Positioning, Gaming Dominance