Calling semiconductors the "new oil" of the global economy, Bank of America analyst Vivek Arya on Monday listed Nvidia and Micron Technology among his top chip stocks for the year.
In a research note, Arya said that despite a "bumpy" ride at the present time, semiconductors should have a strong year due to factors such as expanding cloud services, automobiles and increases in corporate capital spending. Arya estimates that that global semiconductor sales should reach $619 billion this year, or a 13% increase over 2021's sales.
"Rising [interest] rates are the biggest risk to semiconductor industry valuation," in 2022, Arya said. "However, we assume a return to fundamentals once [a] new rate regime is baked in."
Arya called Nvidia (NVDA) his top overall pick among semiconductors on the grounds of its strong presence in gaming, autos, artificial intelligence and the metaverse. Arya said that Nvidia's (NVDA) next GTC conference, in March, "could be [a] positive recovery catalyst" for the chipmaker's stock. Arya has a buy rating and $375-a-share price target on Nvidia's (NVDA) stock.
Arya said Micron Technology (MU) is his top pick among memory chips due to the potential for DRAM chip prices to pick up in the second half of the year. Like Nvidia (NVDA) Arya also has a buy rating on Micron (MU), and he raised his price target on the company's stock to $118 a share from $100.
KLA (NASDAQ:KLAC) was given high marks as Arya's leading choice among semiconductor equipment makers due to its "exposure to [chip] foundry spending and industry-leading profit margins." Arya left his buy rating on KLA (KLAC) unchanged, but raised his price target to $500 a share from $450.
Arya said On Semi (NASDAQ:ON) is his "favorite idea" among small-and-midsize chip stocks, and said the same thing about GlobalFoundries (NASDAQ:GFS) with regards to its position as a chip foundry. Arya has buy ratings on both stocks, raised his price target on On Semi (ON) to $82 a share from $75, and left his $90-a-share price target on GlobalFoundries (GFS) unchanged.
Arya's take on the chip sector came on the heels of an assessment last week about Nvidia (NVDA) and Advanced Micro Devices (NASDAQ:AMD) having particular strength in the gaming-chip market.