Wall Street analysts are increasingly bullish on this chip stock. Here's why

Analysts at Morgan Stanley and Mizuho are becoming more bullish on a certain semiconductor chip stock, with one saying it is now their "favorite long in all tech."

An analyst at Mizuho said Silicon Motion (NASDAQ: NASDAQ:SIMO) is now his favorite name in tech for the time being, stating that the set-up into the second half of this year and is "looking excellent for real alpha generation."

The firm notes that SIMO has generated positive free cash flow over the last four years, while its CapEx spend is modest. 

"SIMO EPS power may not get back to peak years post Covid in low to mid $6 range by next yr, but that is a possibility in 2-3 yrs," said the Mizuho analysts. "What the Bulls tell me is that SIMO is worth 18x on $5 of EPS power next yr, or $90. They have $9 in cash and could win half that much if a Singapore arbitration court rules in their favor and against MXL on a break up fee for walking away from a planned merger with SIMO."

Meanwhile, Morgan Stanley said the company's shares are "finally starting to enjoy an uptrend. They upgraded the stock to Overweight from Equal-weight in a note Monday, raising the price target to $88 from $59 per share. 

"[The] ample business tailwinds excite us, including larger backlog and margin expansion, along with potentially more business upside from the AI era," said the bank. 

Morgan Stanley sees SIMO's valuation as attractive and lifted uts estimates to reflect the company's stronger earnings power.