Goldman Sachs: Buy these semiconductor stocks as electric vehicle demand heats up

Published Fri, Aug 6 20211:42 AM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Goldman Sachs have picked a number of semiconductor stocks, preferring Chinese companies which they say are set to benefit from a sharp increase in demand for electric vehicle components. Goldman spoke with 16 Chinese firms in the semiconductor industry between July 20 and Aug. 2, including companies in sectors such as foundry (fabrication plants), power semiconductors — used in trains and cars — and the smartphone supply chain. Four of the companies "see automotive as a key-end market for future growth," Goldman's analysts wrote in a research note Tuesday. This is due to rising demand for in-car technology such as parking assistance (known as ADAS) and electrification, which requires more semiconductor "content" per car. One of its buy-rated picks is Will Semiconductor, which "noted 8x-10x growth potential in its automotive business" due to new customers in China, Japan and South Korea, as well as product expansion. Goldman said semiconductor companies that produce an EV component known as an insulated-gate bipolar transistor (IGBT) are also set to grow in China: The bank estimated that demand will grow by a compound annual growth rate of 22% between 2021 and 2025 to $1.5 billion. StarPower — which is on Goldman's conviction list of stocks its analysts think will outperform — as well as Silan are both expanding their IGBT business and finding new customers as a result, the bank said. Both stocks are buy-rated by Goldman, with StarPower in particular having "ample upside to grow." "Management maintained a positive tone on 2H demand outlook, mainly driven by IGBT for EV," Goldman's analysts said of their conversation with the company. Semiconductor firm Wingtech sees "strong" demand from automotive customers, according to Goldman's discussions with the company. "Wingtech stated that power semis' dollar content per car is 3-5X higher in EV vs. ICE [internal combustion engine] cars," the analysts said, rating the stock a buy. "We maintain our positive view on Wingtech, given its business expansion … along with market share gains and product line expansion in power semis," Goldman's analysts stated. "Overall, Semis companies' comments on new product progress, new customer penetration, and market share gain potential continue to reaffirm our constructive view on the space," the analysts added. "Will Semi, Wingtech, StarPower, and Silan see automotive as a key end-market for future growth supported by the rising ADAS adoption and electrification given higher semis content per car," Goldman's analysts wrote. Semiconductors have been in short supply due to increasing demand from automakers and smartphone manufacturers as well as factory closures during the coronavirus pandemic. - CNBC's Ryan Browne contributed to this report.

Seksan Mongkhonkhamsao | Moment | Getty Images

Analysts at Goldman Sachs have picked a number of semiconductor stocks, preferring Chinese companies which they say are set to benefit from a sharp increase in demand for electric vehicle components.