As Nvidia gears up to unveil its long-awaited full-year results this Wednesday, JPMorgan analysts have identified VAT Group, ASML Holding, and ASM International as top picks for investors looking to capitalize on the resurgence in the microchip market.
Market Recovery Insights
According to JPMorgan analysts led by Sandeep Deshpande, while the microchip market is showing signs of rebound, certain segments, particularly those supplying chips to the auto and industrial sectors, are experiencing slower improvement. Conversely, the market for memory chips is primed for a robust recovery, with current inventory levels for computer storage devices' microchips below seasonal averages.
Promising Opportunities Ahead
Semiconductor companies in Europe with limited exposure to the auto and industrial sectors, but significant ties to the memory chip market, are poised to reap substantial rewards in the short term. Swiss company VAT Group specializes in vacuum valves for chip manufacturing, while Dutch firms ASML Holding and ASM International are known for their lithography machines crucial in semiconductor manufacturing.
Impressive Stock Performance
Over the past year, shares of all three European companies have seen remarkable growth - VAT up by 51%, ASML up by 43%, and ASM up by an impressive 81%. These companies focus on producing equipment for advanced microchips used in electronic devices like smartphones and PCs, giving them a strategic edge in benefiting from the anticipated market recovery, according to JPMorgan analysts.
Chip Industry Analysis
As the market presents continuous challenges, companies like German firm Infineon Technologies AG (IFX) and Swiss firm STMicroelectronics (STM) are expected to continue trading at subdued levels, despite already being considered affordable.
Inventory Levels Overview
According to Deshpande and the team, chip inventory levels for the auto and industrial sectors are currently 38.7% higher than the three-year seasonal averages in the fourth quarter of 2023. This represents a significant increase from the 31.1% rate observed in the previous quarter.
In contrast, memory chip inventory levels showed improvement in the final months of 2023. They dropped from being 19% above seasonal averages in the third quarter to 1.7% below normal seasonal levels by the end of the fourth quarter last year.
Key Players in the Industry
Market Leader Performance
Nvidia, the leading chip designer globally, is gearing up to announce its 2023 results this Wednesday. Investors are eagerly awaiting these reports for critical insights into the overall health of the global chip market, especially with growing anticipation surrounding a potential AI-driven revolution.
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