The semiconductor industry is currently experiencing the impact of the intense U.S.-China rivalry over semiconductor technology. Although this tension presents challenges for popular chip stocks like Nvidia, there are several companies that Citi analysts believe will benefit greatly from this situation.
The concerns surrounding Taiwan’s vulnerability and broader considerations of national security have prompted increased investment in semiconductor manufacturing by both the United States and Europe. In response to limitations on technology imports, China is also making significant investments in its own chip foundries.
Overall, this situation has sparked a massive wave of investment in semiconductor equipment. Citi estimates that there will be approximately $100 billion in additional spending solely due to the efforts of the U.S. and European governments. In light of this, a number of tech players are expected to reap the rewards. Among them are Taiwan Semiconductor Manufacturing, Samsung Electronics, ASML, Applied Materials, and GlobalFoundries.
According to Citi analyst Chris Danely, ASML and Applied Materials stand out as top picks within the semiconductor equipment space. Both companies hold dominant positions and are poised to benefit from this industry shift.
As the largest American manufacturer of semiconductor-manufacturing equipment, Applied Materials is well-positioned to maintain its leadership in materials engineering in the long term. Its stock has already seen a 55% increase this year and currently trades at approximately $151 per share. Citi maintains a Buy rating on Applied Materials with a target price of $170, based on a price-to-earnings multiple of 17 times its estimated 2025 earnings.
ASML, a Dutch firm, dominates the market for “lithography” machines that are essential for semiconductor production. Citi expects ASML to be a key beneficiary as European chip firms establish new manufacturing sites.
In conclusion, the U.S.-China rivalry in the semiconductor industry has spurred a significant wave of investment in semiconductor equipment. Companies like Applied Materials and ASML are well-positioned to capitalize on this trend and are anticipated to experience further growth in the coming years.
Citi’s Perspective on Semiconductor Industry
Citi, a leading financial institution, has expressed its positive outlook on the semiconductor market, particularly on ASML and Taiwan Semiconductor Manufacturing (TSMC).
ASML: A Strong Investment Opportunity
Citi rates ASML shares with a Buy rating and sets a target price of €780. As of Friday, ASML shares in Amsterdam were priced at approximately €634, indicating potential for significant growth. The company’s American depositary receipts also stood at $688.
TSMC: Unwavering Dominance
Despite geopolitical concerns surrounding Taiwan, Citi remains confident in TSMC’s position as the world’s largest contract chip maker. The firm emphasizes TSMC’s advantage in manufacturing, which solidifies its dominance in the industry. While secondary sourcing opportunities may benefit Samsung and GlobalFoundries, Citi considers TSMC as the top pick.
GlobalFoundries: Promising Prospects
GlobalFoundries receives a Buy rating from Citi, with a target price of $70. The company’s stock currently trades at around $54. Citi acknowledges the potential growth in GlobalFoundries, making it an attractive option for investors.
Intel Lags Behind
Contrary to the optimistic outlook on ASML, TSMC, and GlobalFoundries, Intel faces skepticism from Citi analysts. Despite Intel’s expansion into the foundry business to compete with TSMC and Samsung Electronics, analysts believe that Intel lacks the necessary experience and economy of scale. Furthermore, Citi predicts lower growth for analog companies due to China’s strategy of insourcing semiconductor content.
In light of these factors, Citi rates Intel stock with a Neutral rating and sets a target price of $34. With Intel’s stock currently trading at around $43, the potential for significant progress seems limited.