Four Small Cap Semiconductor Ideas To Look At During AI Boom – NVIDIA (NASDAQ:NVDA), Entegris (NASDAQ:ENT – Benzinga
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NVIDIA Corp NVDA kicked off the artificial intelligence and semiconductor booms, bringing along several semiconductor capital equipment companies.
One analyst pointed to four small semicap companies, Entegris Inc ENTG, BE Semiconductor Industries NV BESI, Veeco Instruments Inc. VECO and Ultra Clean Holdings Inc UCTT, as companies that could outperform Wall Street expectations.
The Semiconductor Analyst: Needham analyst Charles Shi issued Buy ratings for these company’s stock:
Signal in the Noise: Shi believed it was more likely than not that AI-based valuations for semicap companies could be sustained. The analyst stated multiple expansions rather than earnings revisions were responsible for share price appreciation.
“Multiple expansion alone is not necessarily a source of concern. Historically in the early part of an upcycle, semicap stocks often appear to be ‘expensive,’ but the strong upward revisions to EPS into a strong upcycle would naturally resolve the valuation issue,” Shi said. “In this cycle, however, with WFE likely growing at a slower pace than last cycle, we believe the
amount of AI-driven multiple expansion in the past 12 months should concern semicap investors.”
The analyst also pointed to these four companies as long ideas.
ENTG: Entegris has seen downward EPS revisions and its multiple expansions have been outpaced by other semicap players.
“As all semiconductor segments have gone through a correction, we think EPS upward revision is coming, and the stock will look increasingly cheap,” Shi said.
BESI: The analyst saw an opportunity in BE Semiconductor Industries which has similarly been beaten down.
“…we think the stock has been punished accordingly, with its P/E multiple expanding in line with large-cap stocks and EPS estimates resetting lower, which sets the stage for upside surprises,” Shi said. “Moreover, we think investors should not write off BESI’s AI story entirely, as the hybrid bonding story at Intel and TSMC remains solid.”
VECO: The analyst saw reason for optimism in Veeco Instruments amid low expectations for the company.
“We think the setup, i.e. strong execution and low expectation, is a positive for the stock. Moreover, we think VECO’s share gains in laser anneal and ion beam deposition on leading-edge foundry/logic and memory are good stories that will be reflected in upward EPS revisions over the next 12 to 18 months,” Shi said.
UCTT: Ultra Clean Holdings has seen both negative and positive revisions for future earnings. Shi believed the company’s comparatively low multiple expansion makes it a promising trade. The analyst sees UCTT as a “catchup” trade amid its better-perceived execution.
Price Actions at publication Tuesday:
Also Read: EXCLUSIVE: Nvidia Dow Jones Inclusion ‘A Matter Of When’ — Will It Replace Intel?
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