In this piece, we will take a look at the ten semiconductor stocks to buy today according to Peter Rathjens, Bruce Clark, and John Campbell’s Arroswtreet Capital.
Arrowstreet Capital is an investment firm based out of Boston, Massachusetts, United States. The firm is known for taking a quantitative approach to investment and keeping a low profile.
Arrowstreet Capital was founded in 1999 by Harvard professor John Campbell, Mr. Peter Rathjens, and Mr. Bruce Clarke. The trio is still in charge of crucial positions at the investment firm, with each responsible for key areas that suit his profile. Starting from Mr. Campbell, the professor and hedge fund executive is responsible for managing the research division of his hedge fund. Alongside this, he continues to teach at Harvard.
Moving on to Mr. Clarke, he holds the senior most position at Arrowstreet, as he is currently serving as the firm’s chairman. He became the hedge fund’s chairman at the time of its founding and held the role of its chief executive officer as well until December 2014, when he stepped down from the role. After this, he went on to become a managing member at another financial firm, while continuing his role as Arrowstreet’s chairman. Finally, the hedge fund’s final founding member is Mr. Peter Rathjens, who is its chief investment officer and has held this position since 1999.
Arrowstreet Capital describes itself as a firm that uses quantitative tools and proprietary research to make investment decisions. It provides products such as pension plans, endowments, and investment funds to its customers. Some of the strategies that the firm employs include long/short, long only, and alpha extension. For the uninitiated, the alpha refers to the return that a fund generates in excess of a market. The firm also evaluates and selects the firms that it invests in by taking a look at their fundamentals and market performance metrics. These are then factored into a quantitative model that factors in metrics such as variance.
As of the fourth quarter of last year, Arrowstreet Capital has a portfolio worth $81 billion, making the company one of the largest in the world. A cursory look at the holdings reveals that they are concentrated in the information technology industry. In this piece, we will further zoom in on this sector and sift out Arrowstreet’s ten best semiconductor holdings. Out of these, the fund’s largest holdings are in the Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), ASML Holding N.V. (NASDAQ:ASML), and NVIDIA Corporation (NASDAQ:NVDA).
Photo by Umberto on Unsplash
Our Methodology:
In order to list down Arrowstreet Capital’s favorite semiconductor stocks, we sifted through the company’s filings with the Securities and Exchange Commission (SEC). These enabled us to narrow down its chip stock picks for the fourth quarter of last year, following which we took a detailed look at the companies by analyzing their earnings reports, analyst coverage, investor letters, large hedge fund holdings, and hedge fund sentiment generated via Insider Monkey’s survey of 924 funds for Q4 2021.
10 Semiconductor Stocks To Buy Today According To Peter Rathjens, Bruce Clark And John Campbell’s Arrowstreet Capital
10. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Arrowstreet Capital’s Stake Value: $78 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.09%
Number of Hedge Fund Holders: 70
Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the three companies in the world that is licensed to design and sell central computing units (CPUs) based on the x86 microarchitecture. This enables the company to compete in a market with few players. Alongside designing and selling CPUs, Advanced Micro Devices, Inc. also sells graphics processing units (GPUs) to gamers and corporate customers.
By the end of the fourth quarter of last year, Arrowstreet Capital had a $78 million stake in Advanced Micro Devices, Inc.. This was through owning 544,964 shares and it represented a small portion of the overall portfolio. During the same time, 70 out of the 924 hedge funds polled by Insider Monkey also owned the company’s shares.
At the end of its fiscal fourth quarter, Advanced Micro Devices, Inc. revealed in February 2022 that it had earned $4.8 billion in revenue and $0.92 in GAAP EPS. Not only did it let the company beat analyst estimates for both, but the results showed strong growth in the company’s data center segment, which is crucial for most chip firms right now. After the earnings, Deutsche Bank raised the company’s price target to $140 from $120 in the same month, stating that AMD’s predictably strong execution spells out a positive future.
Advanced Micro Devices, Inc.’s largest investor according to Insider Monkey’s research is Ken Fisher’s Fisher Asset Management which owns 19.9 million shares worth $2.8 billion.
Carillon Tower Advisers commented on Advanced Micro Devices, Inc. in its Q4 2021 investor letter, outlining that:
“Advanced Micro Devices (AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”
Advanced Micro Devices, Inc. joins ASML Holding N.V., Taiwan Semiconductor Manufacturing Company Limited, and NVIDIA Corporation as one of Arrowstreet Capital’s top chip stock picks.
9. Cadence Design Systems, Inc. (NASDAQ:CDNS)
Arrowstreet Capital’s Stake Value: $124 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.15%
Number of Hedge Fund Holders: 35
Cadence Design Systems, Inc. (NASDAQ:CDNS) is an American computational software firm whose products sit at the start of the chip fabrication process. Before chipmakers make the chips, they have to design the products, and the company’s software allows designers to develop integrated circuits and system on chips (SoCs).
For its fourth fiscal quarter, Cadence Design Systems, Inc. reported $773 million in revenue and $0.82 in non-GAAP EPS, in a set of results that surpassed Wall Street estimates. The company announced in February 2022 that it become a part of semiconductor giant Intel Corporation (NASDAQ:INTC)’s Intel Foundry Services program for facilitating SoC designs. It also announced a partnership with the U.S. chipmaker GlobalFoundries in March 2022 for developing photonic systems.
Arrowstreet Capital owned 668,834 Cadence Design Systems, Inc. shares during Q4 2021, in a $124 million stake that represented 0.15% of its portfolio. An Insider Monkey poll for the same time period revealed that 35 had owned the company’s shares.
Cadence Design Systems, Inc.’s largest investor is Panayotis Takis Sparaggis’ Alkeon Capital Management. It owns 4.3 million shares for an $802 million stake.
8. Synopsys, Inc. (NASDAQ:SNPS)
Arrowstreet Capital’s Stake Value: $125 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.15%
Number of Hedge Fund Holders: 42
Synopsys, Inc. (NASDAQ:SNPS) is a software firm that works with semiconductor designers and manufacturers. The company’s design/verification and intellectual property divisions allow the chip firms to design system on chips (SoCs), integrated circuits, and manufacturing processes.
By the end of the fourth quarter of 2021, Arrowstreet Capital had owned 668,834 Synopsys, Inc. shares which were worth $125 million and represented 0.15% of its investment portfolio. During the same time period, 42 out of the 924 hedge funds polled by Insider Monkey also held a stake in the firm.
Synopsys, Inc. earned $1.3 billion in revenue and $2.40 in non-GAAP EPS in its fiscal Q1, beating analyst estimates for EPS only. DA Davidson had raised the company’s share price target to $400 from $335 in December 2021, stating that the quarterly results were impressive and the electronic design automation (EDA) industry is set to grow.
Panayotis Takis Sparaggis’ Alkeon Capital Management is Synopsys, Inc.’s largest investor through a $970 million stake that comes through owning 2.6 million shares.
Synopsys, Inc. was mentioned by Carillon Tower Advisers in its fourth quarter 2021 investor letter. Here is what the firm said:
“Synopsys is a semiconductor software company that supplies electronic design automation solutions to the global electronics market. The firm’s shares outperformed in the quarter after management outlined a longer-term vision at the company’s analyst day and suggested a higher level of growth going forward than it has achieved in the previous few years. Synopsys is becoming a key supplier of leading-edge semiconductor designs that are getting increasingly more difficult for chip companies to build on their own. On top of accelerating topline growth, the company also posts healthy profits and robust cash flow generation.”
7. Intel Corporation (NASDAQ:INTC)
Arrowstreet Capital’s Stake Value: $199 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.24%
Number of Hedge Fund Holders: 74
Intel Corporation is an American semiconductor designer and manufacturer which is renowned for several central processing unit (CPU) brands such as the Core Duo, Core2Duo and Core-i lineups. Intel’s products are used in most of the world’s personal computers, and the company is also developing a graphics processing unit (GPU) lineup.
Arrowstreet Capital had a $199 million stake in Intel Corporation during the fourth quarter of last year, which came through owning 3.8 million shares. An Insider Monkey survey of 924 hedge funds for Q4 2021 revealed that 74 had also owned the company’s shares.
Intel Corporation posted $19.5 billion in revenue and $1.09 in non-GAAP EPS at the end of its fiscal Q4. The company is investing in new chip manufacturing plants in the United States, Europe, and Asia, as it looks to balance its production with demand and tailor capital expenditure to both.
Intel Corporation’s largest investor according to Insider Monkey’s research is Seth Klarman’s Baupost Group. It holds 18 million shares that are worth $928 million.
Third Point Management mentioned Intel Corporation in its fourth quarter 2021 investor letter. Here is what the fund said:
“2021 was a highly productive year for Intel‘s new CEO, Pat Gelsinger. Despite the stock’s tepid results, we see a compelling, underappreciated fundamental story. Intel’s “brain drain” – a key part of our thesis when we first sought to help the company confront its long-time underperformance – appears to be reversing. Since joining Intel, Mr. Gelsinger has not only brought back prominent Intel former employees but has also attracted talents from competitors such as AMD, Nvidia, Apple, and, most recently, Micron’s stellar Chief Financial Officer, David Zinsner.
We are encouraged by Intel’s aggressive investment plan, including a recently announced fabrication plant in Ohio and acquisition of Tower Semiconductors. We knew from the start that Intel’s turnaround would be complex and lengthy, and we have been pleased to see Mr. Gelsinger sacrifice near-term earnings for long-term growth.
Finally, after a series of blunders across its PC and Server product lines, Intel is finally receiving good reviews for one of its upcoming processors: Alder Lake. Tom’s Hardware, a preeminent hardware publication, called Alder Lake “a cataclysmic shift in Intel’s battle against AMD’s potent Ryzen 5000 chips.” While this is just one product across a broad lineup, and given it will take time to achieve leadership across them all, we are encouraged by these tangible signs of progress under Mr. Gelsinger’s leadership. With talent returning, an improving product suite, and a willingness to invest for growth, we believe Intel’s prospects have turned the corner. We expect that the company’s upcoming analyst day will be an ideal time for Mr. Gelsinger to articulate the progress he has made and begin to reset expectations for the company.”
6. Applied Materials, Inc. (NASDAQ:AMAT)
Arrowstreet Capital’s Stake Value: $247 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.3%
Number of Hedge Fund Holders: 79
Applied Materials, Inc. (NASDAQ:AMAT) is an equipment manufacturer whose machines enable chip fabrication plants to build their products. The company’s machines cover several areas of semiconductor manufacturing, which involve depositing materials on a silicon wafer, removing them to ‘print’ the designs, polishing the material, and inspecting the end product.
During Q4 2021, Arrowstreet Capital had owned 1.5 million Applied Materials, Inc. shares which were worth $247 million and represented 0.3% of its portfolio. An Insider Monkey survey of 924 hedge funds holdings for the same quarter outlined that 79 had also held a stake in the company.
As its first fiscal quarter came to an end, Applied Materials, Inc. had brought in $6.2 billion in revenue and $1.89 in non-GAAP EPS. UBS raised the company’s share price target to $160 from $150 in February 2022, citing the solid quarterly results and sharing optimism about the company’s future.
David Blood and Al Gore’s Generation Investment Management is Applied Materials, Inc.’s largest investor. It owns 4.2 million shares that are worth $672 million.
LRT Capital Management mentioned Applied Materials, Inc. in its third quarter 2021 investor letter, stating that:
“Compare Rivian to Applied Materials (AMAT), a semiconductor equipment supply company that specializes in the “frontend” (primarily patterning) of the semiconductor manufacturing process. The company makes products that are critical to making modern computer chips. It has a market cap of approximately $145 billion dollars. It, also, generated $0 from selling EVs over its lifetime. However, Applied Materials generated $21 billion in revenue and $5.1 billion in net income over the past twelve months alone in its semiconductor equipment business. Since a company that sells no EVs is worth $150 billion, then Applied Materials semiconductor business is being valued at a negative $5 billion dollars…”
The Taiwan Semiconductor Manufacturing Company Limited, ASML Holding N.V., and NVIDIA Corporation are met by Applied Materials, Inc. in the list of Arrowstreet Capital’s top semiconductor stock picks.
5. International Business Machines Corporation (NYSE:IBM)
Arrowstreet Capital’s Stake Value: $440 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.53%
Number of Hedge Fund Holders: 42
International Business Machines Corporation (NYSE:IBM) is an American company that was previously involved in the direct sales of semiconductors. However, while it has exited this business, the company is still actively involved in semiconductor research, which has enabled it to consistently deliver breakthrough technologies. The company was the first to develop a 7-nanometer chip in 2015, the first with a 5-nanometer chip in 2017, and the first with a 2-nanometer chip in 2021.
Arrowstreet Capital owned 3.2 million International Business Machines Corporation shares as the fourth quarter of last year came to an end. These translated into a cool $440 million stake which represented 0.53% of its investment portfolio. At the same time, 42 out of the 924 hedge funds part of Insider Monkey’s Q4 2021 poll had a stake in the company.
International Business Machines Corporation posted $16.7 billion in revenue and $3.35 in non-GAAP EPS for its fiscal Q4, beating analyst estimates for both. Tigress Financial reiterated a $133 share price target for the company in January 2022, outlining that the company’s cloud division is performing strongly.
Paul Marshall and Ian Wace’s Marshall Wace LLP is International Business Machines Corporation’s largest investor after Arrowstreet. It owns 1.3 million shares worth $181 million.
St. James Investment Company mentioned International Business Machines Corporation in its fourth quarter 2021 investor letter, stating that:
“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department of the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.
One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of
time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’”
4. Cisco Systems, Inc. (NASDAQ:CSCO)
Arrowstreet Capital’s Stake Value: $487 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 0.59%
Number of Hedge Fund Holders: 58
Cisco Systems, Inc. (NASDAQ:CSCO) is an American company best known for its connectivity equipment such as routers and more that are involved in transporting and transferring data in data centers and networks. The company has also expanded into the semiconductor space after it announced in 2019 that it will sell switching chips to data center companies. Previously, Cisco Systems, Inc. had used these chips only in its own products.
Cisco Systems, Inc. brought in $12.7 billion in revenue and $0.84 in GAAP EPS during its second fiscal quarter, posting modest revenue growth and beating analyst estimates for both metrics. Cowen raised its share price target to $66 from $61 in February 2022, highlighting that the earnings reaffirmed modeled estimates and increasing component costs will be balanced with a price increase.
During 4Q 2021, Arrowstreet Capital had a $487 million stake in Cisco Systems, Inc., which was in the form of 7.6 million shares. 58 out of 924 hedge funds profiled by Insider Monkey during the same time period also held the company’s shares.
Cisco Systems, Inc.’s largest investor is Ken Fisher’s Fisher Asset Management which owns 12.7 million shares worth $809 million.
ClearBridge Investments mentioned Cisco Systems, Inc. in its third quarter 2021 investor letter. Here is what the firm said:
“We reinvested a portion of the proceeds into existing holding Cisco Systems, which also has highly valuable technology and an improving secular growth story with its leading position in core networking hardware, as well as in its growing software and services business. Cisco has refocused on winning share in the large and growing hyperscale market and has been investing aggressively in R&D to support growth. We believe Cisco has found new legs after previously ceding some growth opportunities in cloud while maintaining its strong presence in the carrier and enterprise markets. Cisco boasts a strong balance sheet and accelerating multiyear growth while trading at a modest multiple of earnings.”
3. NVIDIA Corporation (NASDAQ:NVDA)
Arrowstreet Capital’s Stake Value: $910 million
Percentage of Arrowstreet Capital’s 13F Portfolio: 1.11%
Number of Hedge Fund Holders: 111
NVIDIA Corporation is an American company that is at the heart of the ongoing semiconductor revolution. The company is known for designing graphics processing units (GPUs) which were initially used only by gamers to run video games. Since then, NVIDIA Corporation has now expanded its presence to cover the rapidly growing data center market, allowing its products to complement the central processing units (CPUs) that have traditionally powered these platforms.
Arrowstreet Capital held a $910 million stake in NVIDIA Corporation during the fourth quarter of 2021. It owned 3 million shares and the stake represented 1.11% of the firm’s investment portfolio. An Insider Monkey survey of 924 during the same period revealed that 111 had also owned the company’s shares.
By the end of its fiscal Q4, NVIDIA Corporation had earned $7.6 billion in revenue and $1.32 in non-GAAP EPS, beating analyst estimates for both. NVIDIA Corporation expanded its presence in the high performance computing (HPC) sector in March 2022, after it announced that it had brought a high performance software defined storage company under its wing.
Ken Fisher’s Fisher Asset Management is NVIDIA Corporation’s largest investor through a $1.5 billion stake via 5.1 million shares.
In a third quarter 20221 investor letter, Harding Loevner had the following to say about NVIDIA Corporation:
“The proliferation of devices using chips, whether EVs, “things” in lol, or embedded systems more generally, results in the generation of oceans of data potentially needing to be stored, processed, and analyzed. NVIDIA, the leading chip designer wellknown for its graphic processing units and its complementary CUDA software ecosystem, is at the forefront of the effort to provide the analytical platform needed to unlock the full potential of such specialist processors.”
2. ASML Holding N.V. (NASDAQ:ASML)
Arrowstreet Capital’s Stake Value: $1.1 billion
Percentage of Arrowstreet Capital’s 13F Portfolio: 1.34%
Number of Hedge Fund Holders: 41
ASML Holding N.V. is a chip manufacturing equipment provider. It is the only company in the world that is capable of making these machines; a fact that has let it gain a crucial place in the semiconductor industry. Its importance is compounded by the fact that due to their complexity, these machines take a long time to be built, which results in a scarce number available for sale each year.
ASML Holding N.V.’s fiscal Q4 results revealed that it had brought in €4.98 billion in revenue and €4.27 in GAAP EPS. The company is currently developing advanced chipmaking machines that are dubbed as High-NA EUV. These use extreme ultraviolet light with a larger lens to print crisper designs on a silicon wafer.
Arrowstreet Capital owned 1.3 million ASML Holding N.V. shares during the fourth quarter of 2021, which enabled it to hold a $1.1 billion stake which represented 1.34% of its portfolio. At the same time, 41 out of the 924 hedge funds polled by Insider Monkey had also owned the company’s shares.
ASML Holding N.V.’s largest investor is Ken Fisher’s Fisher Asset Management. It owns a $3.4 billion stake that comes through 4.2 million shares.
Polen Capital mentioned ASML Holding N.V. in its Q2 2021 investor letter. Here is what the firm said:
“Dutch technology company ASML is the world’s only supplier of photolithography systems to leading-edge semiconductor manufacturers. It is a gross simplification and a valid point to note that ASML’s technology enables the computing technology we use today. For years, ASML engineers bent the laws of physics and enabled Moore’s Law—which states that computer chips will become faster and cost less—to progress.
Incremental innovation gains mushroomed with the rollout of Extreme Ultraviolet (EUV) technology. We were impressed by management’s recent acknowledgment that demand for ASML’s lithography systems is exceeding their prior expectations. Recent announcements by management and major customers for ASML give us even more confidence in the sustainability of growth. We believe ASML could grow its earnings at a high-teens rate over the coming five years.”
1. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Arrowstreet Capital’s Stake Value: $1.2 billion
Percentage of Arrowstreet Capital’s 13F Portfolio: 1.47%
Number of Hedge Fund Holders: 75
Taiwan Semiconductor Manufacturing Company Limited is a Taiwanese company that has risen to the top of the semiconductor industry in recent years. The company is responsible for providing chips to corporate customers based on their designs, and it does not sell any products to the general consumer.
For its fiscal Q4, the Taiwan Semiconductor Manufacturing Company Limited had brought in $15.7 billion in revenue and $1.15 in GAAP EPS, beating analyst estimates for both. Investment bank Morgan Stanley upgraded its stock rating to Overweight from Equal Weight in February 2022, as it stated that the negative effects of the current chip correction will be overweighed by positive developments in the future.
Arrowstreet Capital owned more than 10 million Taiwan Semiconductor Manufacturing Company Limited shares during Q4 2021, which let it own a $1.2 billion stake that made up 1.47% of its investment portfolio. An Insider Monkey survey of 924 hedge funds that covered the same time period revealed that 75 had also owned the company’s shares.
The Taiwan Semiconductor Manufacturing Company Limited’s largest investor is Ken Fisher’s Fisher Asset Management. It has a $3.1 billion stake through 25.9 million shares.
L1 Capital mentioned the Taiwan Semiconductor Manufacturing Company Limited in its third quarter 2021 investor letter. Here is what the fund said:
“Even though they are not majority State owned and we would expect many of China’s technology champions to continue to grow strongly, outcomes for shareholders may be unsatisfactory… The Fund has retained its investment in Taiwan Semiconductor Manufacturing Company (TSMC) which is well placed to maintain its global leadership in semiconductor manufacturing. Due to geopolitical risks, we limit the position size of TSMC in the Fund.”
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This article is originally published at Insider Monkey.
