The best semiconductor stocks this year.

The semiconductor market mirrored the broader global market in the second half of 2018, softening after an impressive multi-year run. According to a new report by Goldman Sachs analyst Toshiya Hari, semiconductor investors can expect more headwinds in the first half of 2019, making stock selection in the space critical. The easy money in semiconductors this cycle has already been made, and Hari says investors should shift focus to companies with low exposure to troubled end markets like memory, auto, industrials and smartphones. Here are Goldman’s seven top semiconductor stocks to buy.

Xilinx (ticker: XLNX)

Hari’s top semiconductor stock for long-term investors is Xilinx, Goldman’s only semi stock to make its Americas Conviction List. Hari says Xilinx’s 2018 fundamental momentum will spill over into 2019 thanks to its exposure to relatively strong end markets such as communications (35 percent of revenue), aerospace and defense (11 percent of revenue) and test and measurement instrumentation (13 percent of revenue). The build-out of 5G wireless infrastructure will be key for Xilinx, which has high exposure to communications infrastructure, such as cellular base stations. Goldman Sachs has a “buy” rating and $95 price target for XLNX stock.

Nvidia Corp. (NVDA)

Hari says Nvidia will have a rebound year. He says headwinds in gaming and data center segment revenue growth in the second half of 2018 will persist in the first half of 2019, but each of Nvidia’s four segments has key growth catalysts coming in the second half of the year. The gaming segment should get a boost from the launch of new games that support ray tracing, while the data center business should be driven by the rise of artificial intelligence and inference software. Goldman Sachs has a “buy” rating and $184 price target for NVDA stock.

Advanced Micro Devices (AMD)

Advanced Micro Devices was Goldman’s top semiconductor stock of 2018, gaining nearly 80 percent on the year. Hari isn’t expecting another 80 percent rise in 2019, but he says AMD will continue to gain market share from Intel Corp. (INTC) in both the PC and server markets. Hari says CPU shortages will incentivize Intel customers to switch to AMD, and server customers are likely happy to have a viable alternative supplier as well. Finally, AMD’s recent product launches have gotten overwhelmingly positive reviews. Goldman Sachs has a “neutral” rating and $25 price target for AMD stock.

Broadcom (AVGO)

After a tumultuous 2018, Broadcom recently guided for another year of double-digit revenue growth in 2019 to go along with its 4.1 percent dividend. Broadcom management may also pursue additional software acquisitions following the company’s controversial deal for CA Technologies in 2018. In the longer term, 5G smartphone architecture should meaningfully drive Broadcom demand in 2020 and beyond. Hari says investors can expect the RF market to markedly improve once significant 5G demand starts to kick in. Goldman Sachs has a “neutral” rating and $264 price target for AVGO stock.

NXP Semiconductors (NXPI)

NXP was Goldman’s worst performing semiconductor stock in 2018 after Broadcom opted to scrap a potential NXP buyout. Following the decline, Hari says NXPI stock is now a compelling valuation opportunity, even given weakness in the auto market. Auto represents about half of NXP’s total revenue. NXPI is priced at a significant valuation discount with an enterprise multiple of only around 8.3 compared to a 12.5 peer average. Hari says analysts also seem to be underestimating the impact of the company’s aggressive stock buyback plan. Goldman Sachs has a “buy” rating and $94 price target for NXPI stock.

Skyworks Solutions (SWKS)

Skyworks is another stock that may require patience given the slow ramp in 5G demand. Skyworks has the highest net exposure to mobile devices in Goldman’s coverage group, with about 70 percent of total revenue coming from mobile demand. Hari says SWKS stock has significant upside, even at a compressed 11x normalized earnings multiple. In the near term, SWKS stock will likely react strongly to Apple (AAPL) iPhone sales given the company’s high exposure to Apple devices. Goldman Sachs has a “neutral” rating and $76 price target for SWKS stock.

Keysight Technologies (KEYS)

Keysight was the best performing stock in Goldman’s semiconductor capital equipment coverage group in 2018. Hari says Keysight is one of the few relatively defensive plays in the semiconductor space given roughly half of its total revenue comes from the communications and defense markets. He says the communications business has several catalysts in 2019, including 5G infrastructure research and development. Hari’s earnings estimates are 5 percent above consensus in 2019 and 12 percent above consensus in 2020. Goldman Sachs has a “buy” rating and a $76 price target for KEYS stock.

The best semiconductor stocks to buy in 2019.

Goldman Sachs analyst Toshiya Hari ranks these seven stocks as the best semiconductor stocks to buy this year:

— Xilinx (XLNX)

— Nvidia Corp. (NVDA)

— Advanced Micro Devices (AMD)

— Broadcom (AVGO)

— NXP Semiconductors (NXPI)

— Skyworks Solutions (SWKS)

— Keysight Technologies (KEYS)

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