Chipmakers have been in the news lately as company after company sounds the alarm on the worldwide chip shortage.
Automakers around the world have said they expect to lose billions of dollars in earnings in 2021 due to the semiconductor deficiency, with General Motors (NYSE: GM) saying last week that the shortage could cut its earnings by up to $2 billion this year. Ford (NYSE: F) said the situation could reduce its earnings somewhere between $1 billion and $2.5 billion this year. Honda (NYSE: HMC) and Nissan (OTC: NSANY) both said they expect to sell 250,000 fewer cars through March due to the shortage.
The shortage is serious enough in fact that the Biden administration is getting involved. A White House spokeswoman said today that top economic and national security officials are ramping up efforts to help the auto industry in the U.S. fight the growing chip shortage that has forced a cut in vehicle production worldwide.
But while many companies are feeling the crunch, on the other side of the equation, some chipmakers could see a boost from the increased demand and pricing power. And according to one trader, now is the time for semiconductor stocks to shine.
“I’ve been overly bullish for years and I continue to be,” said Todd Gordon, founder of TradingAnalysis.com. “I think we’re literally in the next tech boom – 5G, Internet of Things, smart homes, self-driving cars, virtual reality. There’s so many things that chips need to go into, and the demand is going to continue to explode.”
And Gordon says one chip stock looks the most promising now: Nvidia (NASDAQ: NVDA).
Nvidia shares are up nearly 14% so far this year after the stock surged more than 118% last year, and Gordon says the stock could see significant upside ahead.
“I love the technical setup” for Nvidia, Gordon said. “Looks like if we can get above $600, we actually don’t have… resistance until about $1,000.”
Looking at the chart, the stock has been stuck in a sideways trading range since September. But earlier this month, it broke out of the resistance and has since come back to test the new support – a bullish sign that the stock is on its way higher.
Gordon’s target of $1,000 implies nearly 69% upside from the current level.
Analysts like Nvidia as well. Wells Fargo analyst Aaron Rakers and Mizuho Securities analyst Vijay Rakesh both recently named the stock one of their top picks in the sector.
Rakers said Nvidia will benefit from the growing appetite for computing power, with its graphics processing chips well suited to training software working with vast data sets, including translating speech and running virtual assistance.
“While the valuation is relatively high, we believe NVDA is the leading in data center acceleration, and AI which is still in its infancy in a potential $100B market,” Rakesh said.
Joule Financial’s Quint Tatro argued that the chip shortage is overall good news for the broader economy, though he warned the shortage may already be priced in for semiconductor stocks.
“We’re starting to see an economic rebound, we’re seeing pent-up demand, and that’s very exciting,” Tatro, the firm’s president, said. “But unfortunately, many of these stocks have sort of priced that in.”
Tatro likes Applied Materials (NASDAQ: AMAT), but warns the stock may have run up too much.
Applied Materials has risen more than 31% so far in 2021, and is up nearly 200% since the market bottom back in March 2020. But even with both stocks near all-time highs, Tatro says investors would be wise to buy any dip.
“Investors can kind of make note of this, kind of write these names down, and then a during corrective phase this is where you want to look because the demand is strong and it will continue,” Tatro concluded.