Zoom Video (NASDAQ: ZM)
Analyst Steve Enders upgraded the stock from sector weight to overweight in a note to clients Wednesday evening, stating that the company will become a more permanent part of corporate life as firms adopt hybrid work plans.
Enders wrote, “Our recent CIO survey indicates that enterprise adoption of video platforms will continue into CY22 as businesses return to office environments, with 97 percent of respondents maintaining or increasing their spend.” “We see this as a natural result of a future hybrid work state, with CIOs expecting 40 percent of employees to WFH on a regular basis in the long term.”
Zoom was a hot stock last year as the pandemic fueled a surge in work-from-home opportunities, but shares peaked in October and fell as the reopening trade gained traction. Zoom’s stock has increased by 15% in the last three months.
Zoom has other growth drivers in the near and long term, in addition to video conferencing, which remains a key player.
“We see Zoom Phone as the most immediate growth lever, with our base case assuming 4 million seats by FY23, contributing $503 million to FY23 revenue” (10 percent of total rev). Longer term, we believe Zoom has a clear opportunity to become a broader cloud communications platform that supports an ecosystem of solutions,” according to the note.
Zoom has a $428 price target from KeyBanc, which is 15.8 percent higher than where the stock closed on Wednesday.
Semiconductor picks in Asia
A worldwide lack of semiconductors implies that the business may earn more money than ever. Credit Suisse Investment Bank has identified five Asian companies, which may profit from the supply restriction.
Memory chips are critical components in a wide range of products, including smartphones, automobiles, and gaming consoles.
Solid demand for those chips, combined with relatively constrained supply that is not expected to ease until 2023, are expected to keep semiconductor prices firm in the near future, according to a report released last week by Credit Suisse.
According to the bank, some of the factors driving demand are a rebound in smartphone purchases, continued 5G rollouts, and growth in the automotive sector. It went on to say that the Covid-19 lockdowns disrupted already-tight tech supply chains.
Due to a lack of capacity, some foundries, or companies contracted to manufacture chips, have raised their prices, according to Credit Suisse. According to the bank, this trend caused Taiwan Semiconductor Manufacturing Company, the world’s largest foundry by market share and revenue, to cancel discounts and selectively raise prices for some products and expedited orders.
“The Asian semiconductor outlook for companies remains positive into results for the 2H21 outlook, with favourable supply-demand carrying into 2021, driven by continued strong tech demand and tight semiconductor supply driving up pricing,” Credit Suisse analysts wrote in the report.
Semiconductor stock recommendations
The Swiss bank expects its top semiconductor stock picks in Asia to benefit from both near-term supply constraints and medium-term structural demand drivers.
Credit Suisse rates MediaTek as outperform and has set a price target of 1,250 New Taiwan dollars ($44.51) per share, representing a near 34 percent increase from Friday’s close. The bank prefers the Taiwanese chip designer due to its “competitive 5G” chips and market share gains due to factors such as better cost structures and early rollout of its so-called 5G system on chips. SOCs are a type of semiconductor that contains many components needed for a device to work on a single chip, such as a processor, and are an important component in smartphones.
Credit Suisse also rates TSMC as outperform, with a price target of NT$675. It expects “structural growth” from 5G, high-performance computing, computers, and automated driving chips. “TSMC’s position in terms of market share remains healthy,” Credit Suisse analysts wrote, adding that high-performance computing will be “the main business driver” through 2025.
Another option with an outperform rating is Samsung. The investment bank has set a price target of 126,000 Korean won ($109.29), which represents a 58 percent increase. “We believe Samsung is well positioned in terms of memory and OLED cycle strength,” the analysts said. When compared to LCD, OLED provides a sharper display of images and videos in smartphones. Samsung is a significant supplier of OLED screens for Apple’s iPhones.
All of Novatek’s business segments are expected to “remain on the growth trajectory in the next 12 months, and its long-term margin/(return on equity) will be higher than previous cycles,” according to the analysts, who also prefer the company “given its scale and wide product portfolio for bundle selling.”
A broader chip portfolio is expected to drive “multi-year growth” for Shanghai-listed Will Semi, according to the bank. The stock has a price target of 377 yuan ($58.16) per share, with earnings expected to grow by 79.3 percent in 2021 and 30.6 percent in 2022.
Asia’s tech earnings are increasing.
According to Credit Suisse, demand for most major technology products, such as laptop computers, is tracking better than expected at the start of the year, with demand for automotive technologies adding to the strength.
“Current tech chain inventory remains reasonable, with the dominant theme across several components continuing to be one of scarcity rather than hoarding,” the analysts wrote.
Over the next two years, Asia ex-Japan technology earnings are expected to grow at a compound annual growth rate of 30%, according to the bank.
Global energy stocks
The EU’s proposals to cut greenhouse gas emissions by 55% by 2030, announced on July 14, are expected to boost stocks that play on the so-called energy transition theme, according to Barclays analysts in a July 22 research note.
“The market has so far not been willing to pay for energy transition, seeing it as too far away in terms of earnings,” the analysts noted, but added that the EU’s proposals, known as “Fit for 55,” should hasten the region’s transition.
According to Barclays analysts, among the factors that will help investments pay are reduction targets, the installation of electric vehicle charging points, and a “supportive carbon tax.” “We believe investors will recognize the value of European majors’ low-carbon investments today, which should translate into better share price performance,” they wrote.
According to Barclays, the British company BP, the Finnish company Neste, the Anglo-Dutch company Shell, and the French company TotalEnergies are the “relative beneficiaries given their asset portfolios and group strategies.” All of the bank’s stock picks are overweight.
Reducing emissions from transportation is a critical component of the EU’s plan, which aims to reduce such pollution by 90% by 2050. EVs will play a key role in this, and Barclays believes Shell, TotalEnergies, and BP are potential “winners” due to their investments in EV charging.
Biofuels, which can be made from natural materials like wood or manure, are another way to reduce emissions, particularly from shipping and aviation, according to Barclays. Neste has the largest market share in such fuels, with all of its stock picks making inroads.
The EU is also planning a nature-based solutions initiative, with the goal of planting 3 billion trees by 2030. According to Barclays, Shell and BP are using such measures to offset carbon emissions.
While major oil companies are making inroads into less polluting energy generation methods, the companies are under pressure to set targets in accordance with the Paris Agreement, and the world’s overall use of fossil fuels is increasing.
“While the details of the ‘fit for 55′ plan will take time to iron out, we believe the overall direction is encouraging. The accelerated decarbonisation plan “fits the long-term strategies of the European integrated sector, particularly in a few key areas such as future mobility, hydrogen, renewables, biofuels, and nature-based solutions,” according to Barclays analysts.