Advanced Micro Devices (NASDAQ: AMD), Intel (NASDAQ: INTC), NXP Semiconductor (NASDAQ: NXPI), and Texas Instruments (NASDAQ: TXN) kicked off chipmaker earnings over the last week amid a global chip shortage that has spelled trouble for everyone from Apple (NASDAQ: AAPL) to Ford (NYSE: F).
There’s no doubt demand is high for chipmakers right now. In just the last couple of days, Honda said it would halt production at three plants in Japan due to the chip shortage, BMW cut shifts at its factories in Germany and England, Ford reduced its full-year earnings forecast, Caterpillar (NYSE: CAT) said it may not be able to meet demand for machinery used by the construction and mining industries, and Apple said that the lack of chips is crimping sales of its iPads and Macs and could trim $3 to $4 billion off revenue this quarter.
“It’s a fight out there and you have to be in daily contact with your suppliers. You need to make sure that you’re important to them,” said Nokia Oyj CEO Pekka Lundmark. “When there is a shortage in the market, it is things like how important you are in the big picture, how strong your relationships are and how you manage expectations.”
But for the chipmakers, the supply crunch has meant surging sales.
AMD reported on Tuesday that its first quarter net income surged 243% to $555 million, while its revenue rose 93% to $3.45 billion. NXP Semiconductor reported a 27% gain in Q1 revenue. Texas Instruments’ revenue rose 29% to $4.29 billion.
And with demand high and supply squeezed, traders say there are two semiconductor stocks that should come out winners.
“I like AMD, especially for new money,” said Strategic Wealth Partners’ Mark Tepper.
AMD is down more than 8% since the start of the year, which Tepper says is a buying opportunity.
“We actually just increased our position in AMD around March 30 by 75% so we almost doubled down, and obviously we got word last week that Intel’s server business whiffed once again and AMD stock popped, because we all know who’s been eating Intel’s lunch and taking their market share for the last few years,” Tepper said. “It’s been AMD.”
And Tepper is right. Intel reported a 20% decline in data center revenue when it reported earnings last week, while AMD’s enterprise segment sales—which includes server chips—surged 176% in its fourth quarter.
“When you look at AMD versus Intel, AMD has got better innovation, better performance, better price point and they’ve probably got like a two- to three-year competitive lead on Intel,” Tepper added. “The most important business for AMD is still data center, but then you add in the Xilinx acquisition, that diversifies their portfolio. So that would be my play here.”
Oppenheimer’s Ari Wald has another big player in the space in mind: Nvidia (NASDAQ: NVDA).
“You’ll want to own stocks that typically outperform in a rising market tape, semis included,” Wald said. “And one of the biggest U.S. chip players there is Nvidia, just breaking out from a seven-month range, coming back, testing that breakout level at $600, I think the uptrend reasserts itself. And this is a stock with a $700 print over the next six months.”