Nvidia and these other chip stocks named top plays into earnings season

By Emily Bary

Western Digital, Qualcomm shares also among compelling earnings plays, according to Cantor Fitzgerald

Ahead of last earnings season, Cantor Fitzgerald analyst C.J. Muse advised investors not to overthink things. He says the same advice applies this time around, as another set of corporate results looms.

"Secular tailwinds from AI, coupled with cyclical recovery elsewhere combined with our being only four quarters into the recovery...tells us that there remains more upside for the group," wrote Muse, noting that it typically takes nine quarters to hit a fundamental peak. He recommended that investors stay overweight the chip and chip-equipment sector heading into earnings.

Against the backdrop of not overthinking things, Muse named Nvidia Corp.'s stock (NVDA) one of his best tactical ideas for this earnings season. "AI momentum remains strong and should drive another solid beat and raise," he wrote.

Nvidia recently showed off its new Blackwell chip lineup, and the company expects that to contribute later this year. But in the meantime, Nvidia shares look like "a clear top pick," and Muse thinks earnings will "act as a catalyst in the continued push higher." He has an overweight rating and $1,200 target price on the stock, which is up 78% so far this year.

See also: Look beyond Nvidia as these three AI-chip stocks win praise from BofA

Muse also likes shares of Western Digital Corp. (WDC) which already delivered an upbeat preannouncement.

"[T]here is no supply coming online," Muse wrote, and that benefits pricing. "At the same time, we are seeing a dramatic drawdown of [enterprise solid-state drive] inventories, combined with consumer recovery, that should propel demand to well-exceed supply for the remainder of 2024 if not longer, considering very low [capital-expenditure] plans."

He rates Western Digital shares at overweight with a $100 target price.

Muse is upbeat as well about shares of European chip-equipment company ASML Holding NV (ASML). "[L]ook for management to highlight that 2025 continues to track to the mid-point to upper-end of [its] 2025 target model," Muse wrote, pointing out that that calls for EUR30 to EUR36 in earnings per share, while consensus expectations are at EUR28.30 and his own model calls for EUR30.

"Assuming upside to EUR33+ at a 35x multiple (reasonable, as investors willing to assign 25x to broader front-end), we are raising our price target to EUR1,150 (from EUR900)," he wrote. Muse has an overweight rating on the stock.

Read: Why this AMD bull is keeping the faith in the face of the stock's weakness

Finally, he cheered shares of NXP Semiconductors NV (NXPI) and Qualcomm Inc. (QCOM) He expects that NXP will show further resilience in its automotive business, and overall, the company has set itself up with a "very beatable bogey for the upcoming guide." On Qualcomm, he likes the risk-reward balance as the company could benefit from upbeat trends related to Samsung Electronics Co. Ltd.'s (KR:005930) handset business.

He has an overweight rating and $290 target price on NXP shares, though he only rates Qualcomm's stock at neutral, with a $190 target.

-Emily Bary

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04-08-24 0836ET

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