TSMC and more: Goldman Sachs loves these Asian tech stocks, giving one 37% upside

Published Thu, Jan 11 20246:16 PM EST

Amala Balakrishner @in/amala-balakrishner @_amalabk

Many investors have been bullish on technology stocks over the past few months, and Goldman Sachs is no exception. In a Jan. 8 note, the investment bank highlighted opportunities in the Asian tech hardware industry, citing "focal points" for 2024, such as cyclical recovery, artificial intelligence and the impact of geopolitical conditions, including changes in the semiconductor supply chain. "While we expect a very modest cyclical recovery as a whole, we continue to look for opportunities among individual stocks," Goldman Sachs' analysts, led by Daiki Takayama, wrote in the note, naming buy-rated names — including four conviction list stocks — to play the theme. The bank's conviction list comprises its top buy-rated stock ideas that are expected to beat the market. SK Hynix South Korean chipmaker SK Hynix was among the stocks that made Goldman's list of buy-rated names that are also on its conviction list. The investment bank said it's "one of the key beneficiaries of the growth in AI servers," noting that the company is "well-positioned" in the high-end DRAM segment. DRAM refers to dynamic random access memory. It also expects Hynix and other memory suppliers to have "significant earnings growth" this year, thanks to a continued increase in DRAM pricing and some production growth. "We expect Hynix's inventory level for DRAM to reach close to a normal range around mid-2024, which would be the timing when suppliers will start considering wafer input increase," Goldman's analysts added. The bank has a price target of 170,000 Korean won ($129), implying potential upside of around 27.3%. TSMC Taiwan Semiconductor Manufacturing Company is another stock that Goldman favors. The bank likes its "leadership position" and is of the view that it has a "long-term growth opportunity underpinned by structural industry trends." Goldman Sachs said it's bullish on the stock, which is on its conviction list, despite its "choppy" near-term outlook as it expects the company to "achieve its 15-20% revenue [compound annual growth rate] target for the next several years, driven primarily by mid-to-high single-digit % silicon content growth and HPC demand, with [gross margin] remaining at 53%+." The bank expects the price of the Taiwanese tech giant to hit 758 New Taiwan dollars ($24) in the next 12 months, giving it 29.8% upside potential. Renesas Electronics and Foxconn Industrial Internet Goldman also likes Japanese semiconductor manufacturer Renesas Electronics and Foxconn Industrial Internet — the Shanghai-listed unit of Apple supplier Hon Hai — which were also on its conviction list. Renesas' "low P/E (price-to-earnings) multiple makes it more attractive than its peers," the bank's analysts said. "We think the stock is well-positioned with prospects for share price growth as it will likely have the strongest leverage when the cycle recovers among our sector coverage," they added. Goldman gave the stock a price target of 3,300 Japanese Yen ($22.78) implying upside of around 37.7%. Meanwhile, the bank has a target price of 29 Chinese yuan ($4.07) on Foxconn, giving it around 124.6% potential upside. The firm's merits include a growth in revenue from its artificial intelligence arm from 2% in 2022 to 24% in 2025, Goldman wrote in a separate December note. It added that Foxconn is "well-placed to capture strong AI demand growth," given its broad exposure along the AI supply chain, from GPU (graphics processing unit) modules to GPU baseboards, AI servers and related infrastructure. — CNBC's Michael Bloom contributed to this report.