Bank of America (BofA) has raised its price targets for several European chipmakers, citing the continued demand for artificial intelligence (AI).
The bank’s analysts lifted their price objectives for several semiconductor capital equipment (semicaps) and subsystem suppliers, including Nokia, Nordic Semiconductor, Technoprobe, and Comet.
The new price target for Nokia is set at €3.96, up from €3.58, to reflect “AI optionality,” analysts said. Nordic Semiconductor's price target has been raised from NOK 161 to NOK 169, supported by improving end-demand and higher estimates, and Technoprobe's target is now €10.60, up from €9.40, thanks to its unique AI exposure.
BofA’s price target for Comet has been elevated to CHF 448 from CHF 409.
On the flip side, analysts reduced their price target for Aixtron to €20.5 from €25 due to lower assumptions for gallium nitride (GaN), silicon carbide (SiC), and MicroLED.
In broader terms, ASML (AS:ASML) remains a top pick among semicaps at BofA, due to its confidence in order intake momentum driven by increased lithography intensity required for AI chips.
"ASML remains irreplaceable in the buildout of AI infrastructure with all AI processor and DRAM companies using EUV technology to manufacture their chips," BofA highlighted. BofA maintained its price target on ASML shares at €1,302, reflecting higher EBITDA growth and AI scarcity value in Europe.
Heading into the third quarter of 2024, BofA analysts believe investors should anticipate semiconductor stocks to outperform the broader equity markets, citing improving fundamentals and signs that the earnings downgrade cycle is largely over.
“While we continue to anticipate a second-half recovery, customer inventory digestion persists across some end markets, most pronounced now in auto/industrial markets who were later to enter the downcycle,” they wrote.
Analysts observe that markets more exposed to consumer demand are beginning to stabilize, with normalization likely to reach most of the industry by the end of the year. They suggest that recovery across various end-markets will be supported by incoming orders in the second and third quarters, which should lead to a re-acceleration of top-line growth in the second half of the year. Despite this, analysts cautioned there is still uncertainty surrounding the recovery timelines for automotive, industrial, and consumer demand.
Moreover, Bofa analysts continue to see encouraging trends in the memory market, which are driving demand for both semiconductor capital equipment and subsystem suppliers.