Goldman predicts a surging semiconductor market, picks its top U.S. chip stocks

Published Tue, Sep 21 20217:45 PM EDT

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

Analysts at Goldman Sachs now predict more demand and a larger market for the U.S. semiconductor industry, selecting its favorite stocks for investors to take advantage of the surge. The bank "modestly" revised up its year-over-year growth forecasts by 3% for 2021, and by 5% for 2022, for U.S. wafer fab equipment makers. In a note from Sept. 15, it said it had done so in light of Taiwan Semiconductor Manufacturing Company , the world's largest chipmaker, raising its prices. Wafer fabrication refers to the production of electrical circuits found in a raft of products from computers to autos, and demand for such semiconductors has recently been exceeding supply . Goldman's buy-rated "favorite ideas" for U.S. semiconductors are: Applied Materials , which makes solar panel components. It beat analysts' consensus on earnings-per-share and gross margins for the second quarter, per results announced last month . Lam Research , based in Fremont, California, which Goldman is 3.8% above consensus on, in terms of earnings per share, a key measure of a company's performance. Entegris , which Goldman is 1.3% above consensus in terms of EPS. Teradyne , which Goldman has not revised its estimates for. The bank said that all four companies are set to grow market share, expand their margins, grow their shareholder dividends and increase mergers and acquisitions activity. "Although our CY2021 [calendar year 2021] earnings estimates are largely in-line with Street consensus, we see room for CY2022/2023 expectations to trend higher as we progress through the balance of the year and transition into next year," the analysts stated. The analysts also noted that wafer fabrication stocks are cyclical, meaning their performance fluctuates with broader economic performance. "A continued sense of urgency on the part of governments to re-design/onshore supply chains will support a cycle that is 'stronger for longer' compared to past upturns," the analysts added. Goldman raised its forecasts for global semiconductor stocks earlier this month after TSMC's price rise. The bank upped its earnings-per-share estimate by 3% for 2021 and by 15.8% for 2023 in a research note dated Sept. 3.

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Analysts at Goldman Sachs now predict more demand and a larger market for the U.S. semiconductor industry, selecting its favorite stocks for investors to take advantage of the surge.