_Here's Who's Replacing Intel and Qualcomm as the New Kings of the Semiconductor Sector
Nvidia (NVDA) , Broadcom (AVGO) and NXP Semiconductors (NXPI) are emerging as the new kings of the chipmaking sector, thanks largely to their strong end-markets and respective approaches to growth, analysts and industry observers say.
"We're seeing a change in leadership in the space," said Drexel Hamilton analyst Cody Acree, adding that the three have emerged as leaders moving past longtime stalwarts such as Qualcomm (QCOM) and Intel (INTC) .
Nvidia and Broadcom are currently trading at their all-time highs, with Nvidia having gone up around 42% year-to-date and Broadcom rising about 13% so far this year. NXP Semiconductors, too, has enjoyed a nice run in 2016 and has seen its stock steadily increase by about 7%.
While all three have some exposure to the traditional smartphone market, they're seeing more strength from their respective focus on fast-growing niche end-markets, according to Acree.
Nvidia is reaping benefits from enthusiasm about the potential for deep learning, while Broadcom is benefiting from a spending increase in the communications infrastructure market that it serves. (Avago shelled out $37 billion to buy Broadcom last year and took the Broadcom name after the purchase). Broadcom builds products for the storage, wireless communications and wired infrastructure markets, among others.
Meanwhile, NXP is benefiting from its fast-growing automotive and industrial end-markets that are experiencing strong demand for vehicles in developing countries, as well as rapid changes in the broader industrial sector. These changes include trends toward renewable energy that are requiring more infrastructure support.
The three semis have also thrived with their respective approaches to growth, said ROTH Capital Partners analyst Brian Alger via phone Thursday.
"What you've identified with the three names is three different approaches to growth," Alger said.
The recent spike in Nvidia shares is coming from investors' fascination with deep learning, Alger said.
Deep learning refers to a computing model that uses algorithms within neural networks to look at an existing set of data and then make connections to other sets of data. Tech giants including Amazon.com (AMZN) and IBM (IBM) have increasingly adopted deep-learning technology across their businesses, including data centers, or the facilities equipped with networks and servers that support the IT needs of organizations.
"There's a huge opportunity for Nvidia because of their early penetration and early success," he said.
For its part, Broadcom has built up a strong portfolio of businesses over the years largely through M&A, according to Alger.
New technology offerings have displaced incumbent technology, and Broadcom has identified acquisition targets with strong, high-margin products that were spending too much on R&D. By acquiring such companies and killing off unnecessary projects, the chipmaker has been able to generate massive cash flow.
"That process is something they've executed time over time, most recently with the acquisition of Broadcom," Alger added.
NXP Semiconductors, on the other hand, is benefiting not only from its rapidly growing end-markets, but also from the company's geographic footprint in Europe where players such as Infineon Technologies have been a disappointment.
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"Semis are at the heart of everything we do, to one degree or another," Drexel Hamilton's Acree said, adding that many of the most ubiquitous consumer products such as phones and PCs rely on a wide range of chips.
Traditionally, about one-third of the chip market was tied to smartphones, one-third to PCs and one-third to everything else. Now, however, the market is adjusting as smartphones experience slowing growth from the traditional range of 15% to 20% a year to 5%.
But there are bright spots within sub-segments of the broader sector, Acree said, citing the excitement around radio frequency (RF) chips that allow for automated process of capturing data as an example.
Players that are able to spot such areas and aggregate growth opportunities will thrive, Acree said._
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