Nomura Initiates Coverage On Semi Stocks, Picks AMD And Intel As Winners

One Wall Street analyst initiated coverage on four semiconductor stocks Wednesday with a bullish long-term outlook despite near-term cyclical headwinds.

The Analyst

Nomura Instinet analyst David Wong initiated coverage of the following four semi stocks:

• Advanced Micro Devices, Inc. AMD initiated at Buy, $33 target.
• Intel Corporation INTC initiated at Buy, $65 target.
• NVDIA Corporation NVDA initiated at Neutral, $147 target.
• Xilinx, Inc. XLNX initiated at Neutral, $115 target.

The Thesis

The cyclical downturn in the semiconductor market will continue throughout the remainder of 2019 and could potentially continue into 2020, according to Wong. Nomura is calling for a 10-percent drop in chip sales this year, but said the longer-term picture is much more attractive.

“We model long-term semiconductor annual sales growth of 7-9% from 2020 to 2025, driven by new technologies, including artificial intelligence (AI), autonomous driving, 5G communications, IoT, and the continued buildout of global datacenter infrastructure,” Wong wrote in a note.

Wong's top picks are Intel and AMD. He says AMD’s new families of microprocessors and GPUs give the company a chance to gain meaningful market share, while Intel’s leadership in AI and autonomous vehicles provide long-term growth drivers for the stock.

At the same time, Wong remains cautious on both Nvidia and Xilinx. He says Nvidia shares are priced to perfection given the market’s high expectations for its datacenter and AV businesses. He also says Xilinx’s 37 earnings multiple is at risk given competition in the accelerator market and other cyclical headwinds.

Price Action

Here’s how the four stocks reacted Wednesday morning:

• Xilinx was up 0.7 percent.
• Intel was up 1.2 percent.
• AMD was up 4.6 percent.
• Nvidia was up 1.2 percent.

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