These Chip Stocks Are Among the Top Plays Ahead of Earnings Season, Including Nvidia

Leading up to the forthcoming earnings season, Cantor Fitzgerald analyst C.J. Muse has offered investors a straightforward piece of advice: keep it simple. As another wave of corporate results approaches, Muse maintains that the same principle holds true.

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In his assessment, Muse highlights the combination of secular tailwinds from artificial intelligence (AI) and the ongoing cyclical recovery in various sectors. He emphasizes that we are only four quarters into this recovery phase, indicating that there may still be untapped potential for growth within the industry. Muse recommends that investors maintain an overweight position in both the chip and chip-equipment sector as earnings season unfolds.

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Specifically, Muse singles out Nvidia Corp. as one of his top tactical ideas for this earnings period. He anticipates that the momentum in AI will continue to drive strong performance, resulting in another impressive earnings report. Nvidia's recent unveiling of its new Blackwell chip lineup further bolsters Muse's confidence in the company's prospects. He considers Nvidia shares to be a clear top pick at present and predicts that earnings will serve as a catalyst for further upward movement. Muse assigns an overweight rating to Nvidia stock and sets a target price of $1,200, reflecting his bullish outlook for the company's performance.

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Another stock that Muse favors is Western Digital Corp., which has already provided a positive preannouncement ahead of earnings. Muse attributes this to the lack of new supply entering the market, leading to favorable pricing conditions. Additionally, he observes a significant reduction in enterprise solid-state drive inventories, coupled with a recovery in consumer demand. Muse predicts that this demand-supply imbalance will persist throughout 2024 and possibly beyond, given the minimal capital expenditure plans in the sector. With these factors in mind, Muse rates Western Digital shares as overweight with a target price of $100.

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Muse also expresses optimism about the prospects of European chip-equipment company ASML Holding NV. He anticipates that management will affirm the company's performance trajectory aligning with its 2025 target model, which calls for earnings per share between €30 and €36. Muse notes that consensus expectations fall slightly below this range, while his own model predicts earnings of €30. With the potential for earnings to surpass €33, Muse revises his price target for ASML Holding NV to €1,150 and maintains an overweight rating on the stock.

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Lastly, Muse offers positive commentary on NXP Semiconductors NV and Qualcomm Inc. He expects NXP to demonstrate resilience in its automotive business and suggests that the company has set achievable targets for the upcoming guidance. Regarding Qualcomm, Muse sees a favorable risk-reward balance, particularly with potential benefits stemming from positive trends in Samsung Electronics Co. Ltd.'s handset business. He assigns an overweight rating and a $290 target price to NXP shares, while maintaining a neutral rating and a $190 target price for Qualcomm's stock.

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