On Monday, Bernstein reaffirmed their semi cycle thesis, maintaining a positive outlook on certain semiconductor stocks while expressing caution towards others. The firm continues to favor Broadcom Inc. (NASDAQ:AVGO) and Nvidia Corp . (NASDAQ:NVDA), both rated Outperform (OP), citing Broadcom's potential "Nvidia moment" with AI ASICs and networking alongside Nvidia's advantageous position in the upcoming Blackwell cycle.
According to InvestingPro data, NVDA's remarkable financial strength is evident in its perfect Piotroski Score of 9 and impressive revenue growth of 152% over the last twelve months. The company maintains a strong gross profit margin of 76%, though current valuations suggest the stock may be trading above its Fair Value.
The analyst noted that the semiconductor index (SOX) has seen an increase of approximately 23% year-to-date but is underperforming the S&P 500 by around 350 basis points. This underperformance is attributed to lagging traditional areas of the industry, despite some segments showing signs of recovery. PCs have reportedly bottomed out, but CPU inventory issues persist, smartphones are out of favor, traditional datacenter is under pressure, and the industrial sector may be facing a double dip, with automotive also showing signs of decline.
Looking ahead, the cyclical dynamics for the next year are described as "spastic," with high inventory levels and a reduction in semi crowding, as investors have started to lose faith. Despite these challenges, Bernstein sees no reason to alter their stance from the beginning of the year, particularly their top picks in Broadcom and Nvidia.
InvestingPro analysis reveals over 20 additional key insights about NVDA's financial health, which currently rates as "GREAT" with an overall score of 3.59. Subscribers can access the comprehensive Pro Research Report, part of the analysis available for 1,400+ US equities, to make more informed investment decisions.
Qualcomm Inc . (NASDAQ:QCOM) has been a disappointment, but Bernstein remains committed to the stock, maintaining an Outperform rating. The firm recognizes the positive aspects of edge AI and believes in the potential for significant sales and earnings per share by 2029. While acknowledging the overhang from Apple Inc (NASDAQ:AAPL)., the current valuations are deemed acceptable to wait for a resolution.
The view on analog semiconductor companies remains lukewarm due to potential double-dipping in the industrial sector and cracks in automotive. Analog Devices Inc. (NASDAQ:ADI) and NXP Semiconductors NV (NASDAQ:NXPI) are rated Market Perform (MP) due to high valuations and auto exposure, respectively, while Texas Instruments Incorporated (NASDAQ:TXN) faces idiosyncratic headwinds and is rated Underperform (UP).
In the semiconductor equipment sector, Applied Materials Inc. (NASDAQ:AMAT) is preferred over Lam Research Corp . (NASDAQ:LRCX), with AMAT rated Outperform and LRCX Market Perform. This preference is based on AMAT's revenue mix, reduced risk in China, and lower dependency on NAND memory.
Finally, Advanced Micro Devices Inc. (NASDAQ:AMD) and Intel Corp . (NASDAQ:INTC) are both rated Market Perform. AMD's AI story is acknowledged, but its impact is considered too small in the broader market context, and Bernstein anticipates that investor expectations may be set too high.
Intel, on the other hand, is described as a "disaster," with the firm advising to stay away due to uncertainties surrounding the CEO transition. For detailed comparison, InvestingPro subscribers can access comprehensive peer analysis tools and exclusive financial metrics, including NVDA's market capitalization of $3.29 trillion and P/E ratio of 52.35, to better understand relative valuations in the semiconductor sector.
In other recent news, Broadcom reported a notable 220% annual increase in AI revenue, driven by demand for processors and networking components. This surge in demand for AI chips has positively affected the broader semiconductor sector. Analysts from Morgan Stanley (NYSE:MS) and Raymond (NS:RYMD) James have commented on these strong results, with Morgan Stanley raising its price target for Broadcom.
Meanwhile, Nvidia Corp. has dismissed rumors of reducing its supply to the Chinese market, emphasizing its commitment to customer needs in the region.
Nvidia also faces a lawsuit alleging misleading investors about its dependence on crypto-mining sales, following the US Supreme Court's decision not to hear the company's appeal. Additionally, Nvidia, along with AMD and Intel, invested in Ayar Labs, a firm specializing in optical data transfer technology, pushing its market value past the $1 billion mark. Nvidia's stock is projected to reach new all-time highs in Q1 2025, according to Mizuho (NYSE:MFG).
Lastly, the collective valuation of seven leading tech companies, known as the Magnificent Seven—Apple, Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Nvidia, Meta (NASDAQ:META), and Tesla—has exceeded $18 trillion. Nigel Green, CEO of deVere Group, predicts these tech giants will maintain their market dominance into 2025, largely due to their leadership in sectors like artificial intelligence and cloud computing.
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