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The artificial intelligence (AI) revolution is in full swing, and one big winner in this tech wave is the semiconductor industry, which provides the specialized chips powering AI's computing and data processing. The semiconductor market could grow to $1.14 trillion by 2033, expanding at a compound annual growth rate of 7.6%, promising a bright future for AI semiconductor stocks.
GPU chip market leader Nvidia Corp (NVDA), the unofficial “face” of the generative AI revolution, is worth over $1.9 trillion, with its shares up 60% on a YTD basis and 193% over the past 52 weeks. Despite concerns over an “AI bubble” amid these outsized share price gains, Evercore ISI Group’s Mark Lipacis initiated an "Outperform" rating on the stock last week, adding to Wall Street’s bullish consensus.
With NVDA still working out of its single-stock bear market, here are three other AI chip stocks that also received top ratings from Evercore. Let's delve into the details.
AI Stock #1: Microchip Technology
Microchip Technology Incorporated (MCHP) develops, manufactures, and sells smart, connected, and secure embedded control solutions in America, Europe, and Asia. Headquartered in Chandler, Arizona, it has a comprehensive product portfolio serving over 120,000 customers across the industrial, automotive, aerospace and defense, communications, and computing industries.
Valued at $44.1 billion by market cap, shares of Microchip Technology have surged 9.7% over the past 52 weeks. The company offers an annualized dividend of $1.68, which translates to a 2.06% dividend yield.
The stock currently trades at 5.26 times sales – much lower than Nvidia, which is trading at 34.75x sales. Moreover, Microchip Technology trades at a discount to its peers, like Analog Devices (ADI) and Macom Technology Solutions (MTSI).
The company posted fiscal Q3 earnings results on Feb. 1, reporting revenue of $1.8 billion, which exceeded Wall Street projections marginally. Its non-GAAP net income of $592.7 million, or $1.08 per share, also surpassed estimates.
On Nov. 8, the company introduced the industry’s most complete solution for 800G active electrical cables (AECs) used for generative AI networks. Its new META-DX2C 800G retimer is supported by a complete hardware and software reference design with key Microchip components.
Looking ahead, Microchip Technology is expected to unveil its fiscal Q4 earnings results on Thursday, May 2. For fiscal Q4, the company expects net sales to range between $1.225 billion and $1.425 billion, while non-GAAP earnings are anticipated to be between $0.46 and $0.68 per share.
Analysts tracking Microchip Technology predict its EPS to be $4.64 in fiscal 2024.
MCHP has a consensus “Strong Buy” rating overall. Of the 21 analysts covering the stock, 15 recommend a “Strong Buy,” one gives a "Moderate Buy," and five suggest a “Hold” rating.
The average analyst price target for Microchip Technology is $94.09, indicating a potential upside of 11.8%. The Street-high target price of $106, assigned by Evercore last week, suggests a 26% upside potential.
Furthermore, Evercore analyst Mark Lipacis projects Microchip Technology to play a significant role in the rapidly expanding Internet of Things (IoT) market, which is poised to reach tens of billions of units. He further forecasts Microchip Technology's operating margins to expand by an impressive 1,000 basis points over the next decade.
AI Stock #2: NXP Semiconductors
NXP Semiconductors N.V. (NXPI), based in Eindhoven, the Netherlands, offers a range of semiconductor products, like microcontrollers, communication processors, and wireless solutions for diverse applications, including automotive and IoT. It sells worldwide to original equipment manufacturers, contract manufacturers, and distributors. Its market cap currently stands at $55.1 billion.
NXP Semiconductors stock rose 29.4% over the past 52 weeks, outperforming the S&P 500 Index's ($SPX) 21.4% returns and the S&P Semiconductor SPDR's (XSD) 8.6% gains. The stock offers an annualized dividend of $4.06, which translates to a 1.89% dividend yield.
NXPI currently trades at 4.23 times sales, at a discount to many of its peers.
The company reported Q4 results in line with expectations on Feb. 5. While revenue grew 3.3% year over year to $3.4 billion, its non-GAAP net income stood at $966 million, or $3.71 per share, up marginally. This was attributed to year-over-year growth in the automotive and industrial & IoT markets segments, which generated $1.9 billion and $662 million in revenues, respectively.
Looking ahead, NXP Semiconductors is expected to unveil its fiscal Q1 2024 earnings on Monday, April 29, after the market closes. For fiscal Q1, NXP Semiconductors expects revenues to range between $3.025 and $3.225 billion, while non-GAAP earnings are anticipated to be between $2.97 and $3.38 per share.
Analysts tracking NXP Semiconductors predict its EPS to soften to $12.28 in fiscal 2024 before returning to 14.6% year over year growth to $14.07 in fiscal 2025.
NXPI has a consensus “Moderate Buy” rating overall. Of the 25 analysts covering the stock, 13 recommend a “Strong Buy,” two give a "Moderate Buy," nine suggest a “Hold” rating, and one has a "Strong Sell."
The average analyst price target for NXP Semiconductors is $244.62, indicating a potential upside of 11.4%. The Street-high target price of $300, assigned by Evercore last week, suggests a 36.7% upside potential.
AI Stock #3: Impinj
Seattle-headquartered Impinj, Inc. (PI), with a market cap of $3.2 billion, is a chip-producing company that specializes in innovative radio frequency identification (RFID) chip solutions to help businesses and consumers alike by wirelessly connecting products such as shipments, vehicles, and luggage to the internet using RFID chips.
Shares of Impinj are up 33% on a YTD basis, outperforming SPX's 5.9% returns and XSD's 7.7% decline.
The stock currently trades at 10.98 times sales – suggesting it's priced at a premium to most of its RFID peers on this basis.
Impinj reported a stronger-than-expected Q4 non-GAAP net income of $2.5 million, or $0.09 per share, on Feb. 8, on revenue of $70.7 million. Its cash and cash equivalents rose a whopping 383.7% year over year to $94.8 million as of Dec. 31,.
Looking ahead, Impinj is expected to report results for fiscal Q1 of 2024 this Wednesday, April 24, after the market closes. The company expects revenue to range between $72 million and $75 million for the quarter, while non-GAAP net income per share is projected to be between $0.08 and $0.13.
Analysts tracking Impinj project its GAAP losses to narrow to $0.62 per share in fiscal 2024, before swinging to a profit of $0.31 per share in fiscal 2025.
PI has a consensus “Strong Buy” rating overall. Of the nine analysts covering the stock, eight recommend a “Strong Buy,” and one gives a "Moderate Buy" rating.
The average analyst price target for Impinj is $128.22, indicating a potential upside of 6.6%. The Street-high target price of $160, assigned by Evercore last week, suggests a roughly 33% upside potential.
Evercore’s Lapacis sees Impinj, a key supplier in IoT, benefiting from the market's massive growth. He expects Impinj's operational margins to grow significantly, potentially by 2,500 basis points over the next decade, which could boost profitability, especially in a market with low RAIN RFID technology penetration. The analyst also points to industry consolidation and semiconductor market cycles as additional factors favoring the company's performance.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
