After a "monster 2021," Bernstein says it's time to turn more selective on the semiconductor sector. Here are six of the bank's favorite stocks for this year. Analysts at the bank said the semiconductor sector could be nearing "peak cycle," amid signs of a supply chain normalization and correction in some end-markets. "In that environment we would be looking for safety plays, secular growth stories, or companies with other internal catalysts, "Bernstein's analysts, led by Stacy Rasgon, said on Jan. 6. U.S chip giant Broadcom is the bank's top pick in the sector. Rasgon said the company has "better visibility and control over their semiconductor business than most" and an order book visibility of $28 billion stretching into 2023. The company's software strategy has also found traction, while cash generation and deployment remain "stellar," the bank added. "All of this comes coupled to a margin and execution profile unavailable anywhere else in the space, at an extremely attractive valuation which still remains at a sharp discount to the broader semiconductor industry," Rasgon said, putting a price target of $725 on the stock, which closed at $637 on Jan. 7, representing a potential upside of 14%. Secular growth stocks Following its 5G rollout and growth in adjacent markets, Qualcomm is in a meaningful upward revision cycle, having "handily" beat expectations over the last few quarters, Rasgon said. The company's three-year growth targets also highlighted new catalysts such as handsets growth, robust automotive and internet-of-things pipelines as well as its potential as a metaverse play, she added. The bank noted that the company's settlement with Apple over a royalty and patent dispute has also removed an overhang and may provide potential upside for the company. Bernstein's price target of $225 on the stock implies a potential upside of 21% to its closing price of about $186 on Jan. 7. Despite gaining more than 120% last year, Bernstein believes the rally in Nvidia 's stock price still has more legs to run in 2022. The bank has a price target of $360 on the stock, which implies a potential upside of 28% to the stock's closing price of about $282 on Jan. 7. The bank expects continued growth in the company's gaming segment on strong demand and limited supply, while the datacenter segment continues to "fire on all cylinders," Rasgon said. She believes Nvidia has an "enormous" opportunity in accelerated computing and added that the company has become the "poster child" for the metaverse, with opportunities in software and hardware. Semiconductor capital equipment Bernstein believes that the semiconductor capital equipment sub-sector — which manufactures the equipment used to make chips —is one of the best secular stories in the market and is "hugely bullish" on this space over the long term. As the broader industry continues to grow, capital intensity — a key indicator of growth — will continue to rise alongside, Rasgon said. The bank added that spending on wafer fabrication equipment will likely surpass $100 billion this year for the first time. Its top picks in this space are Applied Materials and Lam Research . Bernstein has a price target of $175 on Applied Materials, representing a potential upside of 16% to its closing price of around $151 on Jan. 7. The bank has ascribed a price target of $775 on Lam Research, which closed at around $669 on Jan. 7 — an implied upside of 16%. Cyclical pick Bernstein also likes Analog Devices for its "intriguing" story. The company recently completed the acquisition of chipmaker Maxim Integrated Products (MXIM), which will provide longer term upside and cost synergies, as well significant cash return, Rasgon said. The bank also expects the company to see "solid" near to medium-term demand, with upside across its business segments, good gross margin performance and continued strong bookings. Bernstein has a price target of $210 on the stock, which closed at around $169 on Jan. 7. This implies a potential upside of 24%.
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After a "monster 2021," Bernstein says it's time to turn more selective on the semiconductor sector. Here are six of the bank's favorite stocks for this year.