AMD, Nvidia Among Bank Of America's 9 Top Picks In A Q3 Strong For Semis

The third quarter looks to have been a good one for global semiconductor companies.

In a note to investors, Bank of America Merrill Lynch analyst Vivek Arya Tuesday described 4 percent sequential growth in semi sales in August, with year-over-year growth of 29 percent.

The month-over-month growth of 4 percent was particularly impressive as it suggests sales could grow 10 percent for Q3 over Q2, while average growth this season is typically 8-9 percent.

"Longer term," Arya wrote, "we continue to be positive on the 'golden age' for semis."

The analyst sees longer-term market activities and pricing discipline among the corporations in the space to drive both bottom-line growth — and investor interest.

The Top 9 List

Here's a short list of the semi stocks Bank of America is favoring right now. Among those with higher market caps:

• Broadcom Ltd AVGO.
• Microchip Technology Inc. MCHP.
• Texas Instruments Incorporated TXN.
• NVIDIA Corporation NVDA.
• Skyworks Solutions Inc SWKS.

And the firm's top small- to medium-cap picks:

• Advanced Micro Devices, Inc. AMD.
• ON Semiconductor Corp ON.
• Cypress Semiconductor Corporation CY.
• Cavium Inc CAVM.

Word Of Warning

One sliver of gray sky in an otherwise sunny story for semis this quarter is elevated inventories. According to Arya, supply chain checks in August indicate, though stock levels have lessened a bit, they remain elevated due mostly to weakness in the China smartphone market.

This could be especially worrisome for chip makers that supply phone makers, like Broadcom and Skyworks Solutions, for example.

Semi stock fans will hope to see the sector — up about 29 percent year to date — continue to outperform the market.

Shares of Broadcom were down 1 percent, AMD shares up 4.87 percent in Tuesday afternoon trading.

Related Link: 2 Up, 2 Down: Goldman Adjusts Semiconductor Stock Ratings