Morgan Stanley selected 5 undervalued AI stocks that will dominate the semiconductor sector in the coming months.
Morgan Stanley has identified 5 Undervalued AI Stocks Outperforming the S&P 500 by 67%. The semiconductor industry is experiencing extraordinary growth, driven by technological advances and the increasing integration of chips in key sectors such as consumer electronics, automotive, healthcare, and industrial.
According to a study by Precedence Research, the global semiconductor market is expected to reach $1.14 trillion by 2033, with an expected growth (CAGR) of 7.7% over the period 2024-2033. In the first quarter of 2024, global semiconductor sales reached $137.70 billion, an annual increase of 15.2%, according to the Semiconductor Industry Association (SIA).
With the market for advanced packaging for AI chips set to grow exponentially, investors could discover significant value in these undervalued stocks that outperform the S&P 500 by 67%.
1. ACM Research (United States)
- ACM Research daily graph (Nasdaq)
- Source: Tradingview
ACM Research is a company that is quickly becoming a player in the advanced chip manufacturing equipment industry. Its innovative solutions, such as the Frame Wafer Cleaning Tool, have enabled it to achieve notable financial results. Over the past five years, the company’s revenue has seen a CAGR of 49%, rising 105% in the first quarter of 2024 alone, reaching $152.2 million. Non-GAAP earnings per share (EPS) also rose from $0.15 in 2023 to $0.52, comfortably beating analysts’ forecasts.
ACM Research stock has risen more than 101% over the past year, thanks to the rapid expansion of manufacturing capabilities in the industry. There are 32 new chip factories under construction in China alone, highlighting a growing demand for advanced equipment.
Despite a slight decrease in cash on hand to $288.3 million, total inventory rose to $581.1 million. Analysts have rated ACM Research a “Strong Buy,” with an average price target of $37.91, indicating 57.3% upside potential. With a P/S ratio of 2.45x, the stock is significantly undervalued compared to the industry average.
The strategic collaboration with SK Hynix, supported by the HBM3E and HBM4 product launches, positions ACM Research uniquely in the growing high-bandwidth memory chip market. With solid financial performance and a favorable market outlook, ACM Research represents a very promising investment opportunity.
2. Amkor (United States)
- Amkor Technology graph
- Source: Tradingview
Amkor Technology is an industry leader in outsourced semiconductor assembly and testing (OSAT) services. The company announced an ambitious plan to build an advanced packaging and testing facility in Arizona, aimed at supporting chip production for customers such as Apple, leveraging the capabilities of nearby TSMC facilities. Amkor offers a broad range of semiconductor packaging and testing services internationally, including flip-chip ladder packages, flip-chip ball grid arrays, and memory products.
Recently, Amkor declared a quarterly dividend of $0.07875 per share, payable on June 24, 2024, with an annual yield of 0.95%, higher than the four-year average of 0.71%. Additionally, the company has entered into a multi-year partnership with Infineon Technologies to operate a packaging and testing center in Porto, scheduled for early 2025. This agreement will improve supply chain resilience for the automotive industry.
Amkor reported strong financial results: in the first quarter of 2024, net revenue reached $1.37 billion, with an operating profit of $73 million, up 5.8% year-over-year. Net income was $59 million, with earnings per share (EPS) of $0.24, up 33.3% from the prior year. Amkor shares have gained 50% in the last year, confirming the company’s growth potential and investor confidence.
3. TSMC (Taiwan)
- TSMC graph
- Source: Tradingview
Taiwan Semiconductor Manufacturing Company (TSMC) continues to consolidate its dominant position in the semiconductor industry, approaching a market capitalization of $1 trillioni. Recently, TSMC surpassed Berkshire Hathaway, becoming the eighth largest company in the world by capitalization. Thanks to its advanced CoWoS packaging technology, TSMC maintains industry leadership, with 6%-7% of its total revenue in 2023 coming from advanced packaging. Forecasts indicate an increase of more than 10% in 2024.
TSMC’s technology capacity, set to double this year, supports multiple variations of packaging technologies, meeting the needs of global customers. TSMC’s packaging technology is critical for AI processing, significantly improving memory bandwidth and reducing power consumption by 90% compared to HBM2E technology. TSMC is also the main supplier of advanced chips to Nvidia, recently crowned the world’s most valuable company.
Wall Street analysts recently raised price targets for TSMC, citing growing demand for AI-related semiconductors and potential price increases in 2025. JPMorgan Chase expects AI revenue to reach 35% of total sales by 2028, while Citigroup raised its price target by 12%. Morgan Stanley set a new price target at 1,080 Taiwanese dollars, a potential 11% upside from current levels.
Despite possible margin pressures in the near term, TSMC sees a positive outlook for Apple silicon demand starting in 2025, in line with Apple’s plans to introduce server-based language models. The upcoming iPhone 16 Pro could feature an improved A18 Pro processor to support Edge AI processing, with a 15%-20% increase in size over the A18. This could result in a 3% revenue increase for TSMC, given that iPhone processors account for 20% of its revenue.
4. Disco (Japan)
- Disco graph
- Source: Tradingview
Disco, a Japanese semiconductor manufacturing equipment manufacturer, plays a crucial role in the chip supply chain. The company specializes in making tools for cutting silicon wafers, which are critical for chip production. As advanced chip packaging has grown in importance, Disco has seen significant growth. Disco has adopted a strategy focused on timely delivery of high-end solutions, positioning itself as a high-margin company.
Morgan Stanley estimates that approximately 40% of the company’s revenue comes from this sector. Disco’s stock market performance is impressive: the stock has grown by 259% and its value has increased fivefold since the end of 2022. This success led to the company being included in the Nikkei 225 index.
According to the analysis company Simply Wall Street, the stock has already reached the target price and could stabilize at current levels in the next 12 months.
5. Advantest (Japan)
- Advantest graph
- Source: Tradingview
Advantest is a Japanese manufacturer of automatic semiconductor test and measurement equipment, critical in applications such as 5G communications, IoT, autonomous vehicles, and high-performance computing. Its cutting-edge systems are used in the most advanced semiconductor production lines globally. Among Advantest’s customers stands out Nvidia, the world leader in the chip sector. Thanks to its innovative technology, the company plays a key role in pushing the future of electronics and artificial intelligence.
Citi expects AI-driven earnings to significantly impact Advantest’s performance in the second half of the year. The bank estimates a target price of 6,500 yen, about 15% away from current prices.
|DISCLAIMER
The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings.|
Original article published on Money.it Italy 2024-06-20 07:44:00. Original title: 5 titoli AI sottovalutati che battono l’S&P 500 del 67%
