Bank of America (BofA) raised its target prices for several European chipmakers, citing continued demand for artificial intelligence (AI).
The bank's analysts raised price targets for several semiconductor equipment (semi-cap) and subsystem suppliers, including Nokia, Nordic Semiconductor, Technoprobe and Comet.
Nokia's new price target was raised to €3.96 from €3.58 to reflect “AI optionality,” according to analysts. Nordic Semiconductor's price target was raised to NOK169 from NOK161, supported by improving final demand and higher estimates. Technoprobe's price target was raised to €10.60 from €9.40 due to its unique AI exposure.
BofA raised its target price for Comet to 448 Swiss francs from 409 Swiss francs.
Meanwhile, analysts lowered their target price for Aixtron to €20.5 from €25 due to lower assumptions for gallium nitride (GaN), silicon carbide (SiC) and microLEDs.
More broadly, ASML (AS:) remains Bank of America's top semiconductor stock pick due to confidence in order momentum driven by the increased intensity of lithography needed for AI chips.
“With all AI processor and DRAM companies adopting EUV technology to manufacture their chips, ASML remains an irreplaceable player in building AI infrastructure,” BofA emphasized. Reflecting the strong EBITDA growth and the scarcity of AI in Europe, BofA maintained its target price for ASML shares at €1,302.
Bank of America analysts believe investors should expect semiconductor stocks to outperform the broader stock market heading into the third quarter of 2024, citing improving fundamentals and signs that the earnings downgrade cycle is largely over.
“We continue to expect a recovery in the second half of the year, but customers in some end markets continue to work through inventory, particularly in the automotive and industrial markets, which were late to the downcycle,” they wrote.
Analysts believe that markets driven by consumer demand are beginning to stabilize, with most of the industry seeing normalization by the end of the year. They expect the recovery in various end markets to be supported by order intake in the second and third quarters, with revenue growth accelerating again in the second half of the year. However, analysts caution that there remains uncertainty about the timeline for a recovery in automotive, industrial and consumer demand.
Additionally, Bofa analysts see continued positive trends in the memory market, which is boosting demand for both semiconductor equipment and subsystem suppliers.
