JPMorgan, UBS and more think chip stocks can rally further — and name their top picks for 2022

Published Mon, Dec 27 20219:30 PM ESTUpdated Tue, Dec 28 20211:57 PM EST

Semiconductor stocks have enjoyed a stellar run for nearly three years now, and analysts at Goldman Sachs , JPMorgan , Evercore expect it to continue. Here are some of their favorite chip stocks for 2022. The Philadelphia Stock Exchange Semiconductor Index , which contains 30 of the world's largest chip companies and is seen as a barometer of the sector's health, is its third straight year of growth. But many investment banks believe the rally has further to run. "With supply constraints impacting nearly every part of the semiconductor supply chain, we have been calling for 'stronger for longer' … We see at least another 10 months of upside ahead, and potentially setting a new record high," Evercore wrote on Dec. 15. Meanwhile, boutique investment bank Rosenblatt believes the current cycle "has the legs to match or even eclipse the golden age of semiconductors," it said in a note on Dec. 19. The sector is also benefiting from secular trends such as the growth of the cloud, 5G and autonomous vehicles, Deutsche Bank said in a note on Dec. 14. Meanwhile Wells Fargo and Evercore noted the rising popularity of the metaverse, artificial intelligence and high-performance computing as among the key drivers of growth for the sector. While the banks have forecast semiconductor sales growth of between 8% to 13% in 2022, some have sounded a more cautious tone. Morgan Stanley warned on Dec. 15 that the sector is approaching a "plateau," while UBS said on Dec. 20 that 2022 will be "a choppier year" for semiconductor stocks. Nevertheless, both banks continue to have a positive outlook for the sector heading into the new year. Given this backdrop, here are four of the top stock picks from across the investment banks: Nvidia JPMorgan believes that Nvidia will continue to benefit from three key multi-year growth drivers: PC gaming, data centers/computing and autonomous driving. The bank noted that the company has consistently delivered strong growth across gaming and data centers/computing and will continue to see "outsized growth and clear leadership" in the two segments over the next few years. Wells Fargo sees Nvidia as well-positioned to capitalize on the growing metaverse with its Omniverse Enterprise collaboration platform. "We see Omniverse as a key enabler/platform for the development of the metaverse across a wide range of vertical applications," the bank said. Rosenblatt describes the stock as a "best-in-class AI play with several growth vectors on the horizon," while UBS favors the stock as it builds more stable revenue sources around its wide GPU and software moats. Micron The stock is Wells Fargo's top pick within the sector, with the bank viewing the company as a leader in automotive dynamic random-access memory (DRAM) — an integrated circuit chip widely used in digital electronics. The bank noted that the company has been reporting strong sales growth to the automotive market, a segment where the company has a market share of around 50% Goldman Sachs expects company-specific improvements at Micron , such growing exposure to "high value solutions" such as enterprise solid state drives, as well as a broader cyclical recovery in dynamic random-access memory, to drive positive estimate revisions through 2022. Rosenblatt and Evercore describe the stock as the "best cycle play" and an "idiosyncratic growth story," while JPMorgan believes Micron remains well-poised to benefit from sustained demand drivers in 2022 as data-centric and data-intensive applications continue to proliferate across most platforms. Broadcom Deutsche thinks Broadcom is a "reasonably valued secular grower," while Wells Fargo said that Broadcom's CEO had noted in the company's fourth-quarter earnings call in October that the company is "pretty much booked" through 2023. JPMorgan has a "constructive" growth outlook for the stock in 2022, driven by a strong order book and backlog visibility across multiple businesses. The bank has also forecast a double-digit dividend raise in 2022. Goldman also likes the stock for its steady revenue growth, industry-leading margins, and a step-up in capital return. Marvell Delaware-based Marvell is benefiting from increased customization use in all major markets including data center, 5G infrastructure, and automotive, Rosenblatt said. Marvell's quick move to next-generation 5nm chips may not be quickly matched by competitors, the bank noted. Meanwhile, JPMorgan expects the company to register above-industry average compounded growth of 15-20% over the next several years — driven by its portfolio diversification and expanding pipeline in storage, networking and application-specific integrated circuits.

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