"U.S. Semiconductors Still Undervalued"... KB Securities' Top 5 Picks [Click e-Stock]

Micron, Nvidia, Broadcom, AMD, and ASML
"Still Undervalued Considering Growth Potential"

KB Securities stated that the sharp share price decline in July quickly alleviated valuation pressures in the U.S. semiconductor industry, and named Micron, Nvidia, Broadcom, AMD, and ASML as its five top picks.

On August 12, Sehwan Kim, an analyst at KB Securities, said, "The correction in July should be interpreted as a normalization of share price premiums, not a deterioration in semiconductor earnings."

The gap between the share prices of American semiconductor companies and their actual earnings has narrowed rapidly. As recently as June, share prices had soared to about 45% above their 2021 peaks, but the sharp dip in July returned valuations near their historical levels.

Meanwhile, return on equity (ROE)—a measure of companies' actual profitability—reached an all-time high. This means that while share prices reverted to previous levels, the actual profits of these companies continued to grow.

KB Securities assesses that semiconductor stocks remain inexpensive. The price-to-earnings ratio (PER) for the semiconductor industry is 23.3 times, slightly higher than the S&P 500's 20.3 times. However, earnings are expected to grow at nearly three times the average pace of the index over the next three years. Although current price levels may appear expensive, considering the rate of future growth, these stocks are actually undervalued.

The five top picks each play a crucial role within the semiconductor value chain. Memory semiconductor company Micron has already sold out its fiscal 2026 production thanks to surging demand for High Bandwidth Memory (HBM), and with a PER of just 5.7 times, it is the most undervalued among the five picks.

Nvidia, the leading graphics processing unit (GPU) firm, continues to dominate the AI accelerator ecosystem and is preparing to launch its next-generation "Vera Rubin" chip.

Customized semiconductor designer Broadcom is expected to benefit the most from demand for on-demand AI chips from Big Tech firms such as Google and OpenAI, while AMD is simultaneously increasing its market share in server CPUs and AI accelerators. Dutch company ASML, which effectively monopolizes the market for semiconductor lithography equipment, was highlighted as a key gatekeeper in the industry's capacity expansion cycle.

Kim stated, "Hyperscalers’ AI capital expenditures for the four companies combined are expected to reach about $725 billion this year, a 77% jump from last year, marking another upward revision and justifying semiconductor industry profits. Going forward, the outlook for HBM prices and demand visibility, together with whether hyperscalers continue to raise their capital expenditure guidance, will be key variables in determining whether semiconductor valuations are re-evaluated or face further corrections."

This content was produced with the assistance of AI translation services.