Goldman says investors may be missing 'rapid' growth in chip stocks — and gives 2 over 70% upside

Published Tue, Jun 28 20228:15 PM EDT

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

A new innovation in semiconductor technology is likely to benefit several companies, according to Goldman Sachs — and investors may be underestimating its potential impact, the bank said. Silicon carbide, or SiC, is a chemical compound increasingly used in semiconductors and is more efficient than traditional silicon, Goldman's analysts led by Daiki Takayama said in a June 24 research note. "SiC devices are being positioned within the tech sector as one of the few products with upside as inflation fuels faster tech innovation," the analysts said. "We believe there is a lack of consensus on potential SiC market growth and investors may be underestimating the scale trajectory and impact on the sustainable growth in SiC earnings," Goldman stated. The bank estimates that 13 million battery electric vehicles will use SiC in 2030, against 1 million currently. As a result of this trend, Goldman upgraded Wolfspeed to buy. The company, formerly Cree, went public in October, and is the largest silicon carbide wafer supplier in the world, according to the bank. Goldman also said the company is likely to benefit from U.S. government subsidies and gave the share price a potential 72.5% upside to its 12-month target. Read more This fund manager is beating the market — and he has 4 tips for investors Tech the new value stocks? Here are the 10 cheapest names in the tech space JPMorgan picks stocks to play a part of China that's flown under the radar The bank also reiterated its buy rating on Infineon , a German company that supplies Apple , giving it a potential 74.2% upside to its 12-month price target. "Infineon targets to reach US$1bn of SiC revenues by the middle of the decade, with around 30% market share," the analysts stated. Goldman also reiterated its buy rating on U.S. firm ON Semiconductor , stating: "ON is well-positioned to benefit from the structural growth related to silicon carbide applications driven by the increasing penetration of EVs and electrification in a wide variety of industrial applications." The bank gave it a potential upside of 42.4% to its 12-month price target. Fuji Electric , a Japanese company, is on Goldman's conviction list, its top selection of buy-rated companies. "Visibility on orders (both actual and order volume), which the company has started to win, is now high," the bank said, and also noted its aim to win around a 20% share of the silicon carbide module market by 2026. Goldman gave the stock a potential 39.2% upside to its 12-month price target. "We now expect an inflection point for rapid market growth potentially two years sooner than projected due to upgrades to production capacity via large-scale investment, acceleration of tech investment by semi makers and clarification of roadmaps, and construction/upgrading of supply chains," Goldman's analysts stated.