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90-Day US License Extension to Boost Chip Stocks: 5 Picks

Zacks Equity Research

The United States had blacklisted Huawei Technologies earlier this year, which weighed heavily on American chipmakers. After all, U.S. semiconductor companies were selling products to the Chinese telecom giant and Trump’s administration’s allegations hampered their businesses to a large extent. However, the country’s third 90-day license extension will not only help Huawei’s customers, but also boost the company’s American suppliers’ operations.

Huawei to Enjoy 90-Day Extension for Third Time

On Nov 18, the U.S. Department of Commerce granted a new 90-day extension that allows U.S. companies to continue doing business with China's Huawei Technologies. This Temporary General License or TGL will let firms sell products to Huawei that do not pose national security concerns. Earlier on Aug 17 and Oct 9, U.S. companies had got license extensions to sell goods to Huawei.

The Secretary of Commerce Wilbur Ross, made is quite clear that this extension is intended to primarily benefit the rural telecommunication companies that are dependent on Huawei’s equipment. Meanwhile, the U.S. regulatory committee continues crafting rules on foreign telecom firms that pose national security risks.

Why Does Huawei Impact U.S. Chipmakers?

Huawei Technologies is a major customer of U.S. chip companies, the company alone purchased $11 billion worth of software and chips in 2018. With the company being blacklisted, American firms were having a hard time to find customers.

Semiconductor firms like Micron Technology, Inc., Skyworks Solutions, Inc. and Qorvo, Inc. QRVO witnessed a steep decline in sales in recent quarters. On Oct 9 midnight, Trump’s administration had issued licenses to some U.S. companies, permitting them to sell non-sensitive products to Huawei. This had boosted chipmakers hugely.

Now, this 90 day extension will help the semiconductor space boom after bearing the brunt of the U.S.-China trade war for more than a year now. The effect of the news was instantly visible as share prices jumped. NVIDIA Corporation NVDA and Advanced Micro Devices, Inc. climbed 4.6% and 3.5%, respectively, on Nov 18.

Why Invest in Chipmakers?

Sales of chips highly depend on sales of smartphone, personal computers, and servers for data centers as chips play a vital role in any technology development. As the world shifts toward automation, and trends like IoT, 5G, self-driving cars and artificial intelligence emerge, the demand for chips increases.

Amid the trade tiffs, companies like Applied Materials, Inc., Advanced Energy Industries, Inc. and Inphi Corporation are some that topped third-quarter earnings and revenue estimates. Some players like NVIDIA have shown signs of recovery and are poised to grow in the fourth quarter and beyond.

In fact, biggies like Intel Corporation have raised their outlook, which seems quite promising in the current scenario.

5 Chip Stocks to Buy

Given such positive developments, we have shortlisted five chip stocks that are poised to grow and flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Cirrus Logic, Inc. CRUS is a publicly traded fabless semiconductor company that develops, manufactures, and markets analog and mixed-signal integrated circuits. The company’s expected earnings growth rate for the current year is 28.4% compared with the industry’s estimated earnings growth of 1%. The Zacks Consensus Estimate for its current-year earnings has moved up 21.5% over the past 60 days.

Cirrus Logic, a Zacks Rank #1 company, has outperformed the Electronics - Semiconductors industry in the past one-year period (+83.9% versus +49.2%). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

 

Qorvo, Inc. is a publicly traded company thatprovides radio frequency (RF) solutions and technologies for smartphones and other mobile devices, defense and aerospace, Wi-Fi customer premises equipment, cellular base stations, and Internet of Things applications. The company’s expected earnings growth rate for next year is 18.3%. The Zacks Consensus Estimate for its current-year earnings has moved up nearly 10% over the past 60 days.

Qorvo, a Zacks Rank #1 company, has outperformed the Semiconductors - Radio Frequency industry in the past one-year period (+60.3% versus +40.0%).

 

 

Synaptics Incorporated SYNA is a publicly traded company that develops, markets and sells intuitive human interface solutions for electronic devices and products. The company’s expected earnings growth rate for the current year is 1%. The Zacks Consensus Estimate for its current-year earnings has moved up 26.3% over the past 60 days.

Synaptics, a Zacks Rank #1 company, has outperformed the Electronics - Semiconductors industry in the past one-year period (+56.5% versus +49.2%).

 

 

MACOM Technology Solutions Holdings, Inc. MTSI is a publicly traded company that designs and manufactures analog radio frequency, microwave, millimeterwave and lightwave spectrum products. The company’s expected earnings growth rate for the next quarter is more than 100% compared with the industry’s estimated earnings growth of 55%. The Zacks Consensus Estimate for its current-year earnings has moved up 23.5% over the past 60 days.

MACOM Technology, a Zacks Rank #2 company, has outperformed the Semiconductor - Analog and Mixed industry in the past one-year period (+41.0% versus +24.3%).

 

 

NVIDIA Corporation is a publicly traded visual computing company thatoperates in two segments, GPU and Tegra Processor. The company’s expected earnings growth rate for the current quarter is more than 100% compared with the industry’s estimated earnings decline of 12.5%. The Zacks Consensus Estimate for its current-year earnings has moved up 3.7% over the past 60 days.

NVIDIA, a Zacks Rank #2 company, has outperformed the Semiconductor - General industry in the past one-year period (+45.9% versus +30.1%).

 

 

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Qorvo, Inc. (QRVO) : Free Stock Analysis Report
 
Synaptics Incorporated (SYNA) : Free Stock Analysis Report
 
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