Chip stocks are ripping higher, and one market watcher says the semiconductor space could be in for an even bigger rally.
The SMH semiconductor ETF last week posted its best week in more than two years. The rally, led by Applied Materials, Lam Research and Micron, comes as the group has fallen roughly 5 percent from highs late last month.
Despite that sell-off, SMH is still up about 34 percent in the last year.
Applied Materials and Lam Research are the "two 800 pound gorillas in the space. They both reported and are positive on industry spending in 2018," Mike Binger, portfolio manager at Gradient Investments, wrote in a note to CNBC on Friday.
Applied Materials has rallied 6 percent since the company reported earnings on Wednesday. Lam Research is still down over 9 percent since it reported earnings in late January.
However, Binger targeted another name in the group as the semiconductor to hold: Intel.
Intel shares rallied 4 percent in the past week, and Binger believes the stock could be setting up for the perfect storm for profits.
"This is an easy name to own in the space, they just had a really good quarter, a revenue and [earnings-per-share] beat, and they raised the dividend," he added. "The Internet of Things, the Altaira acquisition, is going well. Memory and data center chips, it's all working well for them," Binger said Friday on CNBC's "Trading Nation" segment of "Power Lunch." "No longer are they at the whims of the PC cycle they're seeing. So own Intel, it's going to work out fine."
Intel has rallied 26 percent in the past year, a statistic that Fort Pitt Capital senior portfolio manager Kim Forrest cites as one reason for her belief in the company.
"Intel is an all-around well-run company that is making steady gains in the newer areas of drones and autonomous driving. The company's most recent quarter shows that the competition is not gaining on the high-margin server chips," she said Friday.
Along with Intel, Forrest also recommends Texas Instruments stock, which she describes as an "analog to digital" chipmaker.
Disclosure: Fort Pitt Capital owns Intel and Texas Instruments. Gradient Investments owns Intel.
