To The Moon

• These semiconductor stocks to buy all offer valuable upsides to investors.
• Nvidia (NVDA): Diversified products and end markets, strong execution and swelling market opportunity position the stock for growth.
• Micron (MU): A dominant market positioning and improving markets point to strong growth in the near term.
• AMD (AMD): Market share gains and lengthening semiconductor cycle bode well for the chipmaker.

Source: Shutterstock

Semiconductor stocks have retreated sharply in the year-to-date period. The iShares Semiconductor ETF (NASDAQ:SOXX), considered a proxy of the industry, has shed 25% year-to-period. This is steeper than the 20% drop for the Invesco QQQ Trust (NASDAQ:QQQ) and 12% decline for the SPDR S&P 500 ETF Trust (NYSE:SPY).

Source: Charts By TradingView

What’s ailing semiconductor stocks? The macroeconomic uncertainty and geopolitical tensions have dented consumer confidence and their willingness to purchase. U.S. consumer sentiment, as measured by the University of Michigan consumer sentiment index,fell to the lowest level in over 10 years in March before recovering slightly in April.

This is weighing down on the demand outlook for chip industry’s consumer-facing end markets such as smartphones.

On the supply side, companies are pressured by component shortages that have disrupted production plans. Then there is the input cost inflation these firms have to contend with.

But analysts are optimistic. As recently as this week, market research firm Gartner upwardly revised its semiconductor industry revenue forecast for 2022 by $37 billion to $676 billion. This represented a 13.6% year-over-year increase, coming on top of the 26.3% growth in 2021.

Much of the improvement is expected to come from higher average selling prices, according to Alan Priestley, research vice p resident at Gartner:

“The semiconductor average selling price (ASP) hike from the chip shortage continues to be a key driver for growth in the global semiconductor market in 2022, but overall semiconductor component supply constraints are expected to gradually ease through 2022 and prices will stabilize with the improving inventory situation.”

I used the following criteria to zero in on semiconductor stocks that offer huge upside potential:

• Market capitalization above $300 million
• Average volume & current volume greater than 500,000
• Analyst recommendation of buy or better
• Average analysts’ price target of 50% above current price
• EPS growth of more than 15% next year
• Average sales growth of more than 15% over the past five years

The firm expects memory market and migration to 5G to fuel growth in the chip sector in 2022. These three stocks will benefit from that trend.

Nvidia (NVDA)

Nvidia’s (NASDAQ:NVDA) valuation could be a deterrent for those picking stocks purely based on valuation. The stock is trading at a pricier price-to-earnings (P/E) valuation of nearly 50 on a trailing twelve months, notably higher than the industry average of under 20. Does that mean one should shun the stock? Probably not.

Team Green has its hands in many pies. Nvidia’s revenue stream diversification came to the fore at its GTC 2022 developer conference held in late March. The company increased its long-term addressable market estimate to $1 trillion, with contributions from silicon and software. About $300 billion of this would come from artificial intelligence and omniverse enterprise software.

Nvidia is one of its kind and it has consistently grown its revenues at a stellar pace over the quarter, while also maintaining a strong margin profile.

As I recommended in late March, it isn’t too late to partake in the Nvidia party. As an added incentive, we now have an attractive entry point, thanks to the 35% plunge in the stock in the year-to-date period (YTD). The average analysts’ price target for Nvidia stock, according to TipRanks, is $336.57,suggesting roughly 76% upside potential.

Micron (MU)

Micron (NASDAQ:MU) will likely benefit from strong demand for memory chips, which are integrated circuits that can store data. These are used in a variety of applications. The company sells a variety of memory and storage solutions.

Micron’s second-quarter results, released in late March, underline the fundamental soundness of the company. Both top- and bottom-line comfortably beat expectations. On the earnings call, chief financial officer David Zinsner said DRAM prices have begun to strengthen and the NAND market is stabilizing. That said, the executive expects supply constraints to limit the company’s ability to serve potential upside to demand.

All the same, the company said improving market conditions and its significantly strong competitive position have set it up for stellar financial results in the second half of the calendar year 2022.

The average analysts’ price target of $115.94 for Micron stock suggests there is scope for about 67% upside.

AMD (AMD)

AMD (NASDAQ:AMD) has preserved its reputation as a growth stock ever since the Santa Clara, California-based company began a turnaround in 2017 with the launch of its Ryzen lineup of processors. The stock has not been immune to the tech sell-off seen since the start of the year. AMD stock has lost about 39% YTD.

Analysts attribute some of the weakness to investor fears of a cyclical slowdown or correction anticipated for the semiconductor sector.

AMD’s first-quarter results, due May 5, are widely expected to show 78% earnings per share (EPS) growth and 62% increase in revenue.

Earlier this week, Raymond James analyst Chris Caso upgraded AMD stock to a strong buy, premised o nmarket share gains in the data center segment. Tight supply conditions are prompting customers to commit to purchases from AMD, he added.

The company is expected to chip away at rival Intel’s (NASDAQ:INTC) share in the PC processor market in the coming years, while also solidifying its position in the server processor market.

AMD stock offers roughly 65% upside potential; the average analysts’ price target is at $143.94.