From ADI To AMD, Morgan Stanley Breaks Down Semiconductors

A pair of big names in the semiconductor space is set to report earnings Thursday, and investors have one last chance to snatch up shares before the big news. Semiconductor stocks have been red-hot in recent years, and Morgan Stanley analyst Joseph Moore expects more of the same from Ambarella Inc AMBA and Analog Devices, Inc. ADI on Thursday.

In a new note to clients Monday, Moore said he expects Analog Devices to break out of its recent sideways trading pattern on the strength of the semiconductor cycle. He believes fears over slipping Apple Inc. AAPL iPhone content numbers are now fairly priced into the stock, which is currently trading at only 16 times the firm’s estimated 2018 EPS. At a forward PE of only 16, the stock is trading at a steep discount to peers Texas Instruments Incorporated TXN and Maxim Integrated Products Inc. MXIM.

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For Ambarella, Moore said investors should keep quarterly expectations in check as the company continues to navigate a transitional year. Moore expects in-line earnings and guidance but is optimistic about the company’s upcoming computer vision product launch. The company’s transition away from reliance on GoPro Inc GPRO has been a painful one, but Moore sees it as a buying opportunity for long-term investors.

Finally, Advanced Micro Devices, Inc. AMD has had an eventful month, announcing China’s Tencent and JD.Com Inc(ADR) JD as new data center partners and new contracts with manufacturers Lenovo and Sugon. Moore said the new deals are certainly positive signs for the company, but the deals are within Morgan Stanley’s model of $300 million incremental revenue growth in 2018.

Morgan Stanley maintains the following ratings and price targets for the stocks mentioned above:

• Analog Devices: Overweight rating, $96 price target.
• Ambarella: Overweight rating, $65 price target.
• AMD: Equal-Weight rating, $6 price target.