Bank of America says to buy these 5 global semiconductor stocks

Published Wed, Apr 21 20211:37 AM EDT

Bank of America has named several European chip stocks that it says investors should buy as the industry grapples with an ongoing global chip shortage. The bank's analysts wrote in a note last week that they're bullish on semiconductors in general, describing them as a "critical commodity" that will enable innovations in everything from 5G and electric vehicles, to autonomous driving and artificial intelligence. Here are the stocks Bank of America says are a buy: Shares of ASML – a Dutch company that sells lithography equipment to chipmakers who use it to manufacture semiconductors – will continue to perform well, according to the bank's analysts. "We expect ASML's premium valuation to continue given dominant position in EUV (extreme ultraviolet lithography," they said, adding that the company is their top pick in the European chip sector. Bank of America is also bullish on Germany's Infineon , which it describes as a market leader in the power semiconductors that are critical in electric vehicles. "Our positive view is based on leading positions in large, long growth duration automotive and industrial semiconductor markets," the analysts wrote, adding that the company has "best-in-class, low-cost" manufacturing for small chips and the potential to expand into other markets. Geneva-headquartered STMicroelectronics sells its products to Apple, which is viewed by some as a negative because Apple is starting to bring chip production in-house. But Bank of America thinks that this issue is baked into the current share price. "Yet we estimate that the company will outgrow its peers in terms of both sales and EBITDA over the next two years," the analysts said. "Hence we would expect a gradual re-rating once we have clarity over Apple relationship and the market better appreciates the growth prospects of the company." Revenue growth at Soitec , a French firm that generates and manufacturers semiconductor materials, is coming in faster than Bank of America expected. The firm's analysts believe it's being driven by faster adoption of Soitec's products and a stronger cyclical upturn in demand. Dutch headquartered ASMI specializes in semiconductor wafer processing equipment for the fabrication of semiconductors. Bank of America thinks ASMI "has significant exposure to two of the fastest growing parts of deposition," which is a process used in semiconductor manufacturing. The world is currently in the grips of a global chip shortage and the semiconductor industry is under immense pressure to increase the number of chips produced worldwide. Two of the best known chip manufacturers have laid out plans to invest heavily in the coming years. TSMC — or the Taiwan Semiconductor Manufacturing Company — has said it is planning to invest over $100 billion in the next three years to meet chip demand, while Intel pledged last month to invest $20 billion in two new chip foundries in Arizona. Several smaller companies are set to benefit from their spending sprees. "After being viewed for many years as a cyclical, 'boom and bust' industry, we believe that the chip industry has entered into a more attractive long-term phase," the Bank of America analysts wrote. They said investors should "own" semiconductor stocks rather than "rent" them. "Whilst the industry is cyclical, we think semiconductor cycles are likely more muted, shallower and longer in nature," they said. "Financially this translates into lower top-line growth volatility, higher margins and cash flows and, for some, richer capital returns to shareholders."

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Bank of America has named several European chip stocks that it says investors should buy as the industry grapples with an ongoing global chip shortage.

The bank's analysts wrote in a note last week that they're bullish on semiconductors in general, describing them as a "critical commodity" that will enable innovations in everything from 5G and electric vehicles, to autonomous driving and artificial intelligence.

Here are the stocks Bank of America says are a buy: