As Nvidia prepares to publish its long-awaited full-year results on Wednesday, analysts at JPMorgan say VAT Group, ASML Holding and ASM International all offer the strongest prospects for investors seeking to capitalize on the rise in the microchip market.
JPMorgan analysts led by Sandeep Deshpande explained that while the stagnation in the microchip market is now showing signs of improvement, certain segments of the market – including those that supply chips to the automotive and industrial sectors – are improving more slowly than others.
Meanwhile, the memory chip market is showing signs of a significant recovery, with inventory levels of microchips used in computer storage devices currently sitting at below seasonal average levels, they said in a note to clients published on Monday.
As such, European-based semiconductor companies, which have the least exposure to the automotive and industrial sectors, and which have the highest exposure to the memory chip market, are expected to see the greatest benefits in the near term, Deshpande and the team said.
The Swiss company VAT Group VACN,
manufactures vacuum tubes used in chip manufacturing, while Dutch companies ASML Holding ASML,
get fatter,
and ASM International,
They both make lithography machines used in semiconductor manufacturing.
Shares in all three European companies have risen significantly over the past 12 months – VAT up 51%, ASML 43%, and ASM 81%.
It is worth noting that the three European companies all focus on manufacturing equipment used to manufacture advanced microchips used in electronic products, including smartphones and personal computers. From JP Morgan's perspective, this puts it in an advantageous position to benefit from any recovery.
Meanwhile, those companies with greater exposure to the automotive and technology industries, including German company Infineon Technologies AG IFX,
And the Swiss company STMicroelectronics STM,
They warn that trading is set to continue at lower levels – despite already being cheap – as the market remains challenging.
Deshpande and the team noted that inventory levels of chips used in the automotive and industrial sectors are currently 38.7% above three-year seasonal averages in Q4 2023, representing a 31.1% deterioration in Q3 2023.
In contrast, memory chip inventory levels improved significantly in the last three months of 2023, after falling from rates 19% above seasonal averages in the third quarter to rates 1.7% below normal seasonal levels at the end of the fourth quarter of last year.
For reference, ASML Holding, which was previously spun off from ASM International in 1984 through a joint venture with Philips PHIA,
It is currently the world's only manufacturer of ultraviolet lithography machines used to manufacture advanced chips used in the artificial intelligence industry.
ASM International continues to design wafer processing machines used in the microchip industry. VAT Group produces the vacuum valves needed to manufacture high-tech chips in sterile environments to ensure they are not exposed to external particles.
nvidia out of stock,
The world's largest chip designer will report quarterly results on Wednesday, which investors are expected to scrutinize for vital clues about the health of the global chip market amid much excitement about a potential artificial intelligence-led boom.
is reading: Nvidia's earnings report could wipe out the momentum that pushed US stocks higher, no matter how it appears.
