Wall Street main banks recommend….
Most of the top Wall Street banks raised their sales predictions for this year and next, and have selected semiconductor companies they expect to gain from increased demand.
Goldman Sachs is bullish on TSMC, or Taiwan Semiconductor Manufacturing Company, and rates the world’s largest foundry, or contract chip manufacturer, as a buy. According to the bank’s analysts, the company’s semiconductor foundry business model “has outgrown the overall semiconductor market over the last few decades.” “TSMC is gaining market share at the expense of everyone else,” they continued.
Goldman has a buy rating on Taiwanese foundry UMC and raised its earnings estimates for 2021 and 2022 by 3.4 and 7 percent, respectively. “We reiterate our Buy rating based on our positive view of UMC’s structural profitability improvements,” the bank’s analysts wrote. According to Goldman, UMC reported that several customers were willing to pay a “price premium” for chip wafer-making equipment.
Goldman is also interested in Samsung. “Our Samsung analyst believes that the company will maintain a consistent market share in the foundry market over the long term,” according to the bank’s note.
BofA chose Applied Materials as its top U.S. semiconductor equipment manufacturer, and ASML of the Netherlands as its top European pick.
Marvell and Analog Devices were chosen by BofA for their exposure to 5G infrastructure, a technology that is expected to grow in popularity as countries recover from the coronavirus pandemic.
NXP Semiconductor and ON Semiconductor, both auto industry suppliers, are also picks for BofA, with autos set to be one of the “fastest growing” sectors over the next three years, according to the bank.
“We remain very bullish on the industry’s long-term fundamental outlook,” Goldman analysts said, “particularly given what we believe to be an attractive through-cycle growth profile (i.e. a few hundred basis points above global GDP growth) and consolidated competitive landscape with high barriers to entry.”
The bank now expects the total addressable market for semiconductor foundries to reach $139 billion globally in 2025, up from $125 billion previously.
According to BofA, the market underestimated how long rising chip demand would last. “The combination of global growth… supply shortages, and rising chip-making cost/complexity is likely to extend industry growth into 2H21 [the second half of 2021] and CY22 [calendar year 2022],” according to BofA analysts.
New 5G smartphones, advanced automobiles, and gaming products are all being developed at the same time, raising chip demand in 2021 and 2022, according to BofA. The analysts wrote, “Consensus recognizes the strength, but not the duration, of this growth cycle.”
The bank increased its global forecast for the semiconductor industry as a whole to $532 billion in 2021, up 21% year on year from a previous estimate of a 16% increase.
The AMC case
To survive and retain its present market price, AMC Entertainment must adapt to the altering entertainment industry, according to NYU professor Aswath Damodaran.
Damodaran, known as Wall Street’s “dean of valuation,” praised AMC for doing what GameStop, another internet trading favorite, did not: capitalize on its stock’s sudden momentum. This week, AMC shares soared above $60, continuing an upward trend that began less than a month ago at around $9 per share.
“Clearly, the business is ripe for change, and AMC owns a niche of this business that is less critical than it once was but is still an important cog in the wheel,” Damodaran explained. “I think you’re going to see more movement in that direction even before Covid AMC was on its way to a subscription model… I think you’re going to see more movement in that direction.”
The stock traded erratically on Thursday. It dropped 30% early in the day, then recovered before falling again shortly before 3 p.m. ET.
AMC announced a new stock offering on Thursday, raising $587.4 million in additional capital on 11.55 million shares. AMC CEO Adam Aron said in a statement that the company has raised $1.246 billion in the second quarter alone, which it intends to use in part to “capitalize on attractive opportunities in the future.”
AMC’s high-volume trading and capital moves come at a time when the movie industry is undergoing blockbuster consolidations as online video streaming takes center stage. Amazon made a $9 billion bid for MGM Studios last month, and AT&T took steps to sell its WarnerMedia asset.
“I think this has clearly made AMC the strongest player in the theater business, because the competition doesn’t have the access to capital that AMC has right now,” Damodaran said. “I believe this is the beginning of a process.”
The stock surge is being driven in large part by retail traders who are taking part in the so-called meme stock frenzy.
It is similar to the activity that drove shares of GameStop, the beleaguered brick-and-mortar video game retailer, to record highs earlier this year. The move was carried out by traders who abandoned most traditional investment fundamentals, largely inspired by Reddit discussions.
Many attempted to expose short sellers in the stock, as well as speculate on the company’s digital future.
“I think there is a feedback loop right now from the price going up, and I think AMC is playing this game a lot better than GameStop,” Damodaran said. “I believe they are taking advantage of an opportune moment to raise capital.”
