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Why Goldman picked Teradyne and Applied Materials over the Nvidia share price

Goldman Sachs delivered Nvidia’s [NVDA] share price and other semiconductor stocks, including Applied Materials [AMAT], Lam Research [LRCX], Entegris [ENTG] and Teradyne [TER], a much-needed lift last week.

Analysts at the investment bank predict a surging US semiconductor market, with demand set to continue to increase. In the research note, which was released on 15 September, Goldman Sachs’ analysts upped their year-on-year growth targets for wafer fabrication equipment providers by 3% and a further 5% for 2022.

While the firm did not single out Nvidia, it picked out Applied Materials, Lam Research, Entegris and Teradyne as their buy-rated favourites in the US semiconductors market. The bank expects all four stocks to expand margins, grow market share, increase shareholder dividends and deal activity.

“Although our [the calendar year 2021] earnings estimates are largely in-line with Street consensus, we see room for CY2022/2023 expectations to trend higher as we progress through the balance of the year and transition into next year,” the analysts stated.

“Although our [the calendar year 2021] earnings estimates are largely in-line with Street consensus, we see room for CY2022/2023 expectations to trend higher as we progress through the balance of the year and transition into next year” - Goldman Sachs analysts

 

What’s happening with Nvidia’s share price?

Despite climbing a staggering 69% so this year (through 24 September), the Nvidia share price was not one of Goldman’s picks. Between July and mid-August, shares in the semiconductor stock experienced some volatility, zigzagging between $190 and $208. However, since 19 August, the Nvidia share price has managed to break higher and closed the 24 September at $220.

Nvidia’s share price carries an average analyst target of $227 on Yahoo Finance, suggesting that there might not be too much upside left in the stock. BofA Securities has one of the more bullish price targets on the semiconductor manufacturer, with a $275 price target, which represents a 25% upside. But could one of Goldman’s picks beat the market?

 

 

Will expanding margins benefit the Applied Materials share price?

Applied Materials provides equipment and software needed for the manufacturing of advanced semiconductors. Applied Materials’ share price has gained a huge 64% so far this year.

The company delivered strong second-quarter earnings in August and, according to Needham & Co analyst Quinn Bolton, are sitting on an order backlog worth more than $10bn. Bolton had a $153 price target on the stock at the end of August.

Among analysts tracking the stock on Yahoo Finance, Applied Materials’ share price has a $162.38 price target, which would see a 15% upside from the 24 September close.

 

 

Can Lam Research grow its market share?

Lam Research’s share price has gained almost 30% so far this year, while over the past month, the stock is up 4%. The company provides the wafer fabrication equipment needed for the global semiconductor industry. For the full year, earnings are forecast to come in at $34.1 a share, up from the $27.28 a share seen in the same period last year. Revenue is pegged at $17.68bn, a 20.7% increase from the previous year.

Analysts seem to think that there is plenty of upside potential left in the stock. Lam Research has a $730.78 average price target from analysts tracking the stock on Yahoo Finance, suggesting a significant upside from the 24 September close of $612.48.

 

 

Is Entegris an acquisition target?

Entegris makes products needed to protect and transport materials needed for semiconductor devices. The company delivered strong second-quarter results, delivering earnings of $0.85 a share against an expected $0.80, and well above the $0.60 seen in the same period last year.

Entegris’ share price closed at $132.46 on 24 September, achingly close to the average analyst target of $135.6. It’ll be interesting to see if Goldman’s reevaluation of the semiconductor industry sees price targets on the stock revisited.

 

 

Will Teradyne increase its shareholder dividends?

Teradyne delivers testing and manufacturing automation technology for the semiconductor industry. Over the past 12-months, Teradyne’s share price has dipped almost 8%, while a $148.32 average analyst price target would imply a 24% upside on the 24 September close. In the second quarter, the company delivered earnings of $1.91 a share on earnings of $1.09bn, with both figures beating Wall Street expectations.

Demand for its semiconductor testing platform is a tailwind for the stock should the semiconductor industry continue to surge. The underlying fundamentals also look strong, with the company having $1.24bn in cash on the books in the most recent quarter.

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