Stocks wired into the future of consumer tech

Microchips are at the heart of an array of cutting edge trends set to shape the landscape of consumer electronics - and these four companies were running the show at this year's CES trade show

Vikram Barhat 22 January, 2020 | 1:45AM
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CES 5G presentation

Every year, CES 2020 touches many aspects of human existence while providing a window to the future of consumer technology. The recent annual fair hosted in Las Vegas didn’t disappoint those hoping to see some cutting-edge trends that spanned from wearable tech to digital heath and from mobility to artificial intelligence.

It’s hard to tell which of the futuristic products on display will change the course of human history or get canned as ideas whose time hasn’t come. However, they helped leading consumer tech players create some buzz around their latest tech innovations.

The following companies are behind many new and developing technologies that are disrupting and revolutionizing the business landscape across many sectors they serve. With deep technological knowhow, resources and products that are aligned with the newest trends, these players are expected to stay ahead of the game, raking in billions in revenue in the process.  

Advanced Micro Devices Inc 
  Ticker: AMD
  Current yield: -
  Forward P/E: 45.66
  Price: US$49.66
  Fair value: US$19
  Value: 156% premium
  Moat: None
  Moat trend: Stable
  Star rating: *
Data as of Jan 16, 2020

Leading semiconductor giant, Advanced Micro Devices (AMD) designs and produces an array of chips for various computing applications in computers and consumer electronics. Its product portfolio includes central processing units and graphics processing units tailored to PCs, game consoles, servers, and other computing devices. The computer market generates the bulk of its sales.

The company had an impressive sneak preview of future offerings at the recent CES 2020, attracting Wall Street praise, particularly for its range of new chips that are claimed to outperform those of the rival Intel.  

“AMD’s key message was that it views itself as a high-performance computing company,” said Morningstar equity report, noting the chipmaker boasts high-profile partners including Microsoft (Surface and Xbox) (MSFT), Sony (6758) (PlayStation), Apple (AAPL) (MacBook and Mac Pro), and Google (GOOGL) (Stadia and cloud).

Despite falling behind competitors in recent times, AMD is still able to develop differentiated products. “Its accelerated processing unit integrates a CPU and GPU onto one piece of silicon [which] enhances system performance by allowing the processors to run in parallel and thus more optimally,” says Morningstar sector strategist Abhinav Davuluri, who forecasts a top-line annual growth of about 12% through 2023.

The stock is currently trading at a considerable premium to its US$19 fair value estimate thanks to a banner year resulting in 150% value appreciation, making the stock the biggest gainer in the S&P 500 benchmark for 2019.

Qualcomm Inc 

 

Ticker:

QCOM

 

Current yield:

2.59%

 

Forward P/E:

23.04

 

Price:

US$91.68

 

Fair value:

US$80

 

Value:

Fairly valued

 

Moat:

Narrow

 

Moat trend:

Negative

 

Star rating:

***

Data as of Jan 16, 2020

World’s largest wireless chip vendor, Qualcomm (QCOM) develops and licenses wireless communications equipment for smartphones. The firm, whose IP is licensed by virtually all wireless device makers, is also poised to be a leader in 5G.

The company made waves at CES 2020 with its latest autonomous driving platform, asserting its role in the global march towards driverless cars. The chipmaker topped US$600 million in automotive revenue in 2019 and expects to reach US$1.5 billion annually in 2024.

“Qualcomm stands to benefit from the rise of 5G and its inclusion in future vehicles, as its modem technology is considered best of breed,” says a Morningstar equity report, noting the company “already has an automotive pipeline of more than US$7 billion across telematics, infotainment, and in-car connectivity.”

That said, Qualcomm primarily remains the custodian of patents associated with wireless communications technologies such as 3G and 4G LTE. The company’s licensing business sees solid growth, boosted by continued 4G penetration and the ramp-up of 5G in 2020 and beyond.

“As 5G proliferates in coming years, we expect Qualcomm to regain its baseband position in the iPhone, while it also pivots into non-smartphone areas such as automotive and Internet of Things,” says Davuluri, who recently raised the stock’s fair value estimate from US$72 to US$80, prompted by stronger expectations for the firm’s 5G prospects.

Intel Corp 
  Ticker INTC
  Current yield: 2.14%
  Forward P/E: 12.29
  Price: US$59.67
  Fair value: US$65
  Value: Fairly valued
  Moat: Wide
  Moat trend: Negative
  Star rating: ***
Data as of Jan 16, 2020

One of the world's largest chipmakers, Intel (INTC) designs and manufactures microprocessors for the global personal computer and data centre markets. The company, whose server processor business has benefited from the shift to the cloud, has also been expanding into new areas such as the Internet of Things, memory, artificial intelligence, and automotive.

Intel showed off new laptop and server chips at CES 2020, including foldable laptops that will feature those chips. However, it was the progress made in the autonomous driving technology by Mobileye, which Intel bought in 2017, that made the biggest splash. With sales close to US$1 billion in 2019 and expected to rise double-digits this year, Mobileye’s is pushing into newer markets to expand its global footprint.

“Intel-Mobileye is well-suited to capitalize on the autonomous driving opportunity, given its strategy for scalability and real-time map development,” says a Morningstar equity report, adding “meaningful penetration into the automotive market” would bolster Intel’s wide moat.

The semiconductor behemoth is the leader in the microprocessors found in PCs and servers. “As cloud computing continues to garner significant investment, Intel's data centre group will be an indirect beneficiary,” says Davuluri, who pegs the stock’s fair value at US$65.

Data centres that are used to facilitate the information stored, analyzed, and accessed by various devices are mostly run with Intel server chips, which provides “strong tailwinds for Intel's lucrative server processor business,” he adds.

STMicroelectronics NV ADR 
  Ticker: STM
  Current yield: .88%
  Forward P/E: 20.16
  Price: US$27.34
  Fair value: US$23
  Value: 19% Premium
  Moat: Narrow
  Moat trend: Stable
  Star rating: **
Data as of Jan 16, 2020

Leading European chipmaker, STMicro (STM) makes a variety of semiconductor products and primarily supplies them to the industrial and automotive industries.

The company has been implementing structural improvements to its product mix and margin profile, which were reflected at the recent CES 2020 where it displayed a wide variety of automotive, industrial, and artificial intelligence-related products. “We noted significant interest in the firm’s electric vehicle (EV) products, many of which are silicon carbide-based, or SiC, semiconductors,” says a Morningstar equity report, underscoring that this creates long growth runway “as these devices continue to be deployed in EV inverters and onboard chargers.”

STMicro’s design win in Tesla’s EV inverters is the key revenue driver for SiC power semis today, says Morningstar sector director Brian Colello. The company, he adds, could meet its target of capturing a 30% share of a roughly US$3 billion SiC market by 2025.

“ST is well-positioned to capitalize on the need for SiC-based semis to deliver higher voltages within these advanced EV systems,” says Colello, who puts the stock’s fair value at US$23 per ADR. The global SiC market is projected to reach US$6.8 billion by 2028, driven by global EV adoption.

As well, ST’s artificial intelligence development remains impressive, points out Colello, noting the firm has “some promising growth opportunities on the horizon in microcontrollers, sensors, and automotive products.”

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About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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