‘Golden era’ for chipmakers: Analyst picks 5 stocks to buy right now

Published Thu, Mar 25 20217:11 PM EDTUpdated Fri, Mar 26 20213:23 AM EDT

For better or for worse, electronic chips, or semiconductors, have become one of the most in-demand products of the Covid era. While the surge in demand is wreaking havoc on the automotive and consumer electronics industries, chipmakers themselves are well placed to benefit from the supply shortage as the world starts to realize just how important they are. "I just think it's going to be a golden era for semiconductors over the next two, three years," Wedbush analyst Matt Bryson told CNBC on Wednesday, and named five stocks to buy: Bryson said investors should buy Intel, Taiwan Semiconductor Manufacturing Company (TSMC), ASML, Advanced Micro Devices, and Nvidia, as the chip shortage looks set to continue. One of the main reasons for the current market dynamics is a lack of high-tech chip manufacturing facilities, or foundries, around the world, according to Bryson. "That comes down to both a sharp uptick in consumer electronic buying – so whether it be PCs, peripherals, gaming consoles, what have you – but then also the rise of 5G when you just have a whole lot more semiconductor content in the phone," he told "Squawk Box Europe." "That happened faster than anyone expected," he said, adding that there just isn't enough capacity to make the required number of chips. Roughly 80% of the world's chips come from Asia, while the U.S. produces 15% and Europe produces around 5%. TSMC and SMIC are the two biggest chip producers globally. The U.S. and Europe are keen to improve chip supply chain security by setting up their own foundries. Intel announced on Tuesday that it plans to invest $20 billion in two new chip foundries in Arizona following a debate among investors over whether it should make its own chips or outsource manufacturing. It currently manufactures some of its own but the majority are made by other companies. Intel said it expects to announce other new foundries in the U.S. and Europe in the near future. "I think Intel is doing the right thing," said Bryson. "If you look at Intel under (former CEO) Bob Swann, they were very careful about how much they spent, which is great for investors, but when you're falling behind in the technology, spending less would seem not to be the way to go." "I think this will be expensive, it will weigh on profitability, but it gives them the best chance three years, four years, five years down the road to be the Intel of five to 10 years ago, when they dominated the chip space," he added. Off the back of the Intel announcement, shares in chip manufacturer TSMC slipped by around 4%. Bryson said that investors should look at the TSMC share sell-off as an "opportunity" as he doesn't expect the lack of major chip foundries globally to be properly addressed over the next two to three years. Despite the shortage, chips haven't yet become significantly more expensive, Bryson said. Foundries are yet to see "much benefit" in terms of pricing, he explained, adding "pricing contracts in the chip industry tend to be longer term in nature because you've got to have certainty around chip supply. So I think those benefits for the foundries are yet to come." Others stocks set to benefit Bryson highlighted that Intel's plan to spend $20 billion on two new chip foundries in Arizona was "certainly good for toolmakers." The Santa Clara chip giant has pledged to invest more in extreme ultraviolet lithography, or EUV, which is a technology used to print chips. Amsterdam-headquartered ASML, valued at around $232 billion, is the world's largest EUV equipment seller. As such, Intel's investment in EUV is going to "going to be seen as a good thing for ASML," according to Bryson. Bryson added that he expects Nvidia and AMD, best known for making graphics chips that sit in computers, to also "do very well."

The Epyc 2nd generation chip, manufactured by Advanced Micro Devices .

David Paul Morris | Bloomberg | Getty Images

For better or for worse, electronic chips, or semiconductors, have become one of the most in-demand products of the Covid era.

While the surge in demand is wreaking havoc on the automotive and consumer electronics industries, chipmakers themselves are well placed to benefit from the supply shortage as the world starts to realize just how important they are.

"I just think it's going to be a golden era for semiconductors over the next two, three years," Wedbush analyst Matt Bryson told CNBC on Wednesday, and named five stocks to buy: