Bank Of America Gets Bullish On Semiconductors

Is Bank of America Late To The Party?

Bank of America (NYSE:BAC) issued a note on the semiconductor sector this week that helped push the entire complex to new highs. While a positive for the market the growing bull-market in the semiconductor sector is no surprise to us here at Marketbeat. Not only has the pandemic spurred the shift-to-digital to new highs but consumers have wiped the shelves clean of product which is helping to alleviate inventory issues and bring the supply/demand picture into a favorable trajectory. Add to this the 5G roll-out which will in turn spur adoption of the IoT, and the rapidly-growing EV market, and the outlook for semiconductors and semiconductor equipment is robust.

Bank of America Points To Secular Tailwinds In The Semiconductor Sector

Bank of America reiterated its bullish call on the semiconductor as it expects a rapid acceleration of growth. The firm points to a cyclical shift that should underpin growth for many years. After several years of low-single-digit growth, BoA analysts are calling for revenue to expand by an 8% CAGR over the next three years. There are four themes to the bullish call including Infrastructure, 5G, electric/autonomous vehicles, and cloud growth.

"Looking ahead we see: 1) accelerating global GDP, 5.4% in ’21, per BofAe, highest since 1973; 2) Lean inventory; 3) Enhanced investments in 5G as phone units 2x YoY, semi manufacturing, re-shoring; and 3) secular tailwinds from cloud, AI, gaming, IoT and digitization of the global economy," BofA says. The “COVID-19 recovery could be uneven and rising rates would affect trade multiples, but semis can offer high-quality alpha…”

BoA’s most-favored industry is the semiconductor equipment stocks and we agree. The growth of chip manufacturing hinges on the ability to make chips and that starts with wafer manufacturing and quality control. This sector is expected to lead the group with a CAGR in the 10% range and in turn led by Applied Materials (NASDAQ:AMAT). Shares of AMAT got a special shout-out and price-target upgrade to the Wall Street high implying a 17% upside.

Intel Names New Chief, Shares Pop

Shares of Intel (NASDAQ:INTC) popped more than 10% after the company confirmed CEO Bob Swan will step down in February. Swan has come under increasing criticism for failing to keep Intel innovative and competitive in recent years. The company has seen a steady decline in market share because of it and looking to regain its lost position.

VMWare CEO Pat Gelsinger will take on the new role delivering a blow to that stock but that is another story. Earlier in the month, Swan was reported talking to an activist investor that is believed to have precipitated the move. Third Point's Dan Loeb tweeted: "Swan is a class act and did the right thing for all stake holders stepping aside for Gelsinger."

Shares of Intel received six upgrades and/or price target increases in the wake of the announcement. The consensus of $60 implies about 5% of upside for the stock while the more-recent price target has INTC trading closer to $70.

The Technical Outlook: The SOX Is In Rally Mode

The Philadelphia Semiconductor Index (NADSAQ:SOXX) is in a strong uptrend that may be getting stronger. The index is up more than 100% from the March 2020 low and trading at an all-time high. The indicators are bullish with steady momentum and stochastic showing a bit of strength by crossing the upper signal line. In the near-term, however, traders and investors may wish to use caution when entering the sector because price action is elevated above the short-term moving average. Waiting for price weakness or a pullback may provide a better entry point.