Semiconductor stocks have had one heck of a year in 2020.
The SOXX iShares PHLX Semiconductor ETF, which tracks 30 of the sector’s most important names, is up more than 47% year-to-date, and has surged 120% since its March bottom to its highest valuation multiple in nearly a decade.
But while the group may be expensive, Wells Fargo (NYSE: WFC) analyst Aaron Rakers said last week that chip stocks have more room to run as the world clamors for the semiconductors that power 5G phones and data centers amid the ongoing economic recovery.
Among Rakers top picks in the space is Nvidia (NASDAQ: NVDA), which he says will continue to benefit from the growing appetite for computing power. Rakers noted that Nvidia’s graphics processing chips are well suited to training software working with vast data sets, which then can do things like translate speech and run virtual assistants.
And with the uses for those tools increasing, Rakers boosted his price target on the stock from $605 to $625 – 20% higher than the price as of this writing.
Rakers said his other picks Advanced Micro Devices (NASDAQ: AMD), Micron (NASDAQ: MU), and Western Digital (NASDAQ: WDC), also have room to run. The Wells Fargo analyst said AMD will benefit from the need for more data center processors, Micron’s DRAM chips will be in demand for 5G phones and next-generation videogame consoles, and said that Western Digital looks ripe for a turnaround in the second half of 2021 given that its flash-memory business is undervalued and it will ship an increasing number of solid-state drives to buyers.
But of the four, TradingAnalysis.com founder Todd Gordon said this week that Nvidia is the stock to watch in the space.
Nvidia has rocketed 188% since its March bottom but has been locked in a sideways trading range since hitting a high at the beginning of September.
“I think it’s time for Nvidia to begin to break out of this consolidation,” Gordon said. “We’re looking for a little bit of a trigger or some kind of boost; some kind of positive data point to push this up and out.”
Nvidia will report earnings on February 17. As the company is always determined to beat Wall Street’s expectations, Gordon said he believes the report will be the catalyst to push the stock to new highs.
Gordon currently owns 30 Nvidia shares, accounting for roughly 3% of his portfolio, and said that he will “look to increase” his overall position in the stock as it moves higher.
As for the industry as a whole, Gordon sees it continuing to outperform in the year ahead.
“The semis are just continuing to act extremely well with 5G coming out [and] gaming being such an important segment here coming up to the holiday season,” Gordon added. “With 5G coming on, the semiconductors are going to be involved in everything everywhere. So, it’s a great sub-industry to be in within the technology sector.”