Forget Nvidia? These 2 little-known chip stocks have over 100% upside, Jefferies says

Published Tue, Sep 17 20247:08 PM EDT

Ganesh Rao @_GaneshRao

The semiconductor sector logged some big gains last week, with industry giants Nvidia, ASML, and TSMC leading the charge. However, investment bank Jefferies is drawing attention to two lesser-known chip stocks that it believes could rise by more than 100%: Aixtron and Ams OSRAM. The SOX Semiconductor index rose around 10% last week after a tough summer, helped by positive comments from Nvidia's Chief Executive Jensen Huang over demand for the company's latest artificial intelligence chip, Blackwell. At a Goldman Sachs conference on Sept. 11, Huang said that "demand is so great that delivery of our components and our technology and our infrastructure and software is really emotional for people," sparking optimism across the sector. The SOX index is down around 1.4% this week so far. Looking ahead, analysts at Jefferies pointed to the ongoing recovery in the semiconductor industry, with global chip sales growth accelerating to 18.7% year-over-year in July. They expect this growth to continue, potentially peaking at 30-35% by mid-2025. "AI-enabled smartphones, recovering general purpose server demand, improving PC demand, and further increases in DRAM and NAND flash pricing are among the factors likely to drive further cycle strength through 2024 and 2025," said Jefferies analysts led by Janardan Menon in a note to clients on Sept. 13. "Alongside these trends, we expect share prices to rally over the next 12-15 months through a combination of re-rating and earnings momentum. We therefore recommend being overweight the sector." Aixtron Aixtron, a Germany-based provider of manufacturing equipment for the semiconductor industry, has been "incorrectly" impacted by the news of peer Infineon 's breakthrough in the latest 300-millimeter wafer technology, according to Jefferies. Infineon, also headquartered in Germany, said last week that its latest development will enable it to increase the number of chips per wafer by 2.3 times. The power chips are targeted for use in AI data centers and electric vehicles. However, Jefferies believes Aixtron will maintain its dominance in the market, with the company confirming it has a 300-millimeter gallium nitride tool currently in research and development. "We therefore do not believe Aixtron has lost business at IFX [Infineon] to a competitor, and expect them to remain Infineon's leading supplier of MOCVD machines as they move towards HVP in the next 2-3 years," the investment bank's analysts said. Jefferies expects shares of Aixtron to rise by 115% to 35 euros ($38.80) a share over the next 12 months. The stock is also traded in the U.S. AIXXF 1Y line Ams OSRAM Ams OSRAM, an Austrian-German semiconductor company, recently completed the issuance of 200 million euros ($222.73 million) in senior notes, yielding 10.5% in coupon payments to replace other short-term debt due in 2024. The debt consolidation means Jefferies expects the company's operating margins and cash flows to rise steadily from the second half of 2024 and into coming years, positioning it for strong growth. "Their next major refinancing which is still outstanding is, therefore, the €760m [convertible bond] due 2027, which is still some time away," the analysts added. The analysts expect shares of Ams OSRAM, listed on the Swiss stock exchange, to rise 179% over the next 12 months to 2.4 Swiss francs ($2.83). The stock is also traded over the counter in the U.S.

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Forget Nvidia? These 2 little-known chip stocks have over 100% upside, Jefferies says

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