7 Semiconductor Stocks to Buy for Growth in a Volatile Market – BofA

  • Disruptions in the semiconductor supply chain have been exacerbated by the conflict between Russia and Ukraine.
  • Despite this, Bank of America forecasts 13% year-over-year growth for the industry in 2022.
  • The bank shared seven “high conviction” names to capitalize on this growth amid market volatilities.

In the wake of the current COVID-19 pandemic, which followed global supply chain disruptionsconcerns about a Federal Reserve Hiking Cycleand the Russia-Ukraine conflictmarkets have been especially volatile in recent months.

Even in light of geopolitical concerns and apprehensions around the business cycle, Bank of America analysts identified one particular industry where they remain “structurally positive”: semiconductors.

“In our opinion,


volatility

it’s a fact of life in a high-beta sector like semiconductors, but as long as global GDP remains above trend, semiconductor stocks are attractive,” wrote the team, led by research analyst Vivek Arya, in a note dated March 25.

Arya highlighted the fact that both the current global GDP and the estimates for 2023 meet the definition of “above trend”, which is growth greater than 3%. Overall, he predicts semiconductor sales will grow 13% year-over-year in 2022, while he estimates the growth rate to remain above trend at 8% year-over-year in 2023.

While current economic problems such as high inflation could reduce consumer demand for electronics like smartphones and computers, especially in Chinese markets, Arya believes the semiconductor industry will remain strong due to its pivotal role. in a world that becomes increasingly dependent on technology.

Pointing out the great potential in cloud infrastructureIn 2022 alone, he predicts more than 30% growth in semiconductor cloud spending as corporations increasingly invest in new opportunities such as the metaverse.

“These types of investments are less affected by changes in discretionary consumer demand and could prove resilient even during economic disruption,” he wrote. “Meanwhile, a strong recovery in enterprise IT upgrades has emerged as an unexpected and long-lasting growth opportunity for semiconductors, well correlated with rising employment data and accelerating reopening themes.”

But Arya also stressed that certain industries, such as autos, face already increased supply constraints, and the semiconductor industry’s severe demand-supply mismatch will certainly get worse before it gets better.

This mismatch has been especially exacerbated by the Russian-Ukrainian war, as Ukraine alone is responsible for around 50% of the world’s neon gas, a critical input for semiconductor production, BlackRock said. Gargi Pal Wall, who heads investment strategy for the firm’s $2.2 trillion iShares Americas unit. Even companies with a stockpile of semiconductors will run out in three to six months, he estimated, just when demand should pick up.

Still, Chaudhuri remains positive on semiconductors in the near term, given the sector’s strong margin resilience and high pricing power, also citing digitization as a key long-term driver. Arya echoed the sentiment, pointing to strong demand for auto-related semiconductors as proof of the sector’s ability to pass on higher input costs to consumers.

Key Stock Picks

Within the semiconductor industry, Arya and his team identified seven names that they considered to be equivalent to FAANG tech titans. The seven “MAAANGO” stocks, as analysts at Bank of America call them, are listed below, along with each company’s ticker, market capitalization, target price and analyst comments.

“We have a strong belief that these stocks are leveraged in the right end markets with strong demand visibility and consistent execution,” Arya wrote.

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