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Semiconductor stocks had a good year in 2023, bouncing back from the post-pandemic underperformance of 2022. The PHLX Semiconductor index (Sox) index surged 65% in 2023, well outpacing the S & P 500. BofA says it’s bullish on the sector this year despite a strong run in 2023, predicting that it could be the start of an upcycle. The last three upcycles drove an average return of 67% in the Sox index, it said in a Jan. 10 note. The bank pointed out tailwinds such as artificial intelligence infrastructure, growing chip design complexity, and chip content in vehicles. UBS said in a Jan. 10 note that it’s optimistic about the memory chip sector. Memory chips have been in the spotlight as AI ramps up. For example, memory with high performance and bandwidth is used in Nvidia’s H100 graphics processing units. GPUs underpin most generative AI tools. “AI to continue to ‘lift all boats’ for DRAM stocks,” it said. DRAM, or dynamic random access memory, is a type of semiconductor memory needed for data processing. CNBC Pro pored over January’s Wall Street research to identify some of analysts’ top 2024 semiconductor picks. Micron Several analysts from UBS, BofA, Wolfe Research, KeyBanc Capital Markets and Mizuho named Micron as one of their top picks. Wolfe Research says Micron will likely benefit from a strong recovery in 2025 when it comes to DRAM and NAND. NAND is another type of memory that stays viable without a power source. Wolfe’s bull case scenario assumes a 40% year-on-year growth in DRAM and 50% for NAND — driving overall revenue growth to 42% year on year in 2025 for Micron. BofA, KeyBanc and Mizuho gave Micron a price target of $100, or potential upside of around 20%. Nvidia Despite Nvidia’s epic 239% rise in 2023, several still named it as among their top picks for this year. KeyBanc says it “remains the best positioned play for generative AI.” “Despite significant appreciation in 2023 (+239%), we expect outsized AI tailwinds to sustain, supported by growing demand backlog and incremental supply,” KeyBanc said. “NVDA’s dominant market position, matured ecosystem, and leadership in silicon performance should position it to benefit from strong genAI demand and a $150B [total addressable market] in 2027.” Wolfe said Nvidia is its “Alpha List” pick given its confidence in the company’s earnings over the next several quarters, and the long-term opportunities from its AI dominance. KeyBanc gave the stock a $650 price target, while BofA has a $700 price target. That represents potential upside of around 18% and 27%, respectively. BofA said Nvidia is its top sector pick, owing to its generative AI dominance, which could generate $100 billion of incremental free cash flow over the next two years. Broadcom Some “selectivity” will be needed in the semiconductor space this year, Bernstein said in a Jan. 4 note. It named Broadcom as its top pick, driven by a strong AI story, “phenomenal” financial performance, and attractive valuation. Mizuho said Broadcom “remains an industry leader” and continues to see strength in its broad semiconductor portfolio, which includes broadband, software, wireless (iPhone) and networking tech. Both Bernstein and Mizuho gave the stock a price target of $1,250, implying about 13% upside. TSMC Bernstein called Taiwan’s TSMC its “2024 best idea” in its January note on Asia semiconductors. It gave TSMC an outperform rating with a price target of 750 New Taiwan dollars ($24). Bernstein said it supports TSMC’s claim that its N3P product, a semiconductor process technology, will be more competitive than Intel’s similar product, 18A. “We advocate TSMC will be more competitive and the best proof of that will be Intel extending the outsourcing to TSMC to include the compute tile of its CPUs,” said Bernstein, referring to the CPU core. It said this is one reason it named TSMC its best idea for the year. UBS, for its part, said TSMC is “poised for a strong rebound” in 2024. “We think TSMC is in a sweet spot for growth over the next 18 months,” the bank said, listing factors such as cloud AI, edge AI from the smartphone, PC and internet of things markets. — CNBC’s Michael Bloom contributed to this report.
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