Seven Chip Stocks Emerge as Wall Street's Top Picks Following Recent Pullback
The Philadelphia Semiconductor Index has fallen 16.6% from its mid-July peak, compared to a 3.2% decline in the S&P 500 over the same period. In the past five trading days, $PHLX Semiconductor Index (.SOX.US)$ has shown signs of recovery, climbing 11.5%.
Leading Wall Street firms such as Bank of America, Citigroup, and Morgan Stanley have identified seven chip stocks with the highest rebound potential. Here’s a look at their top picks.
Citi Bullish on Micron
In an August 8 semiconductor industry report, Citi noted that while chip stocks saw a sharp decline in the second quarter of 2024, this was primarily driven by macroeconomic factors and high expectations. Citi remains optimistic about the semiconductor market, mainly due to strong demand in AI and memory markets.
Micron Technology, one of the world's largest memory manufacturers, continues to be Citi's top pick. Analysts at the firm stated, "it’s time to double down as the DRAM upturn should persist given reduced capacity and DRAM pricing in 3Q24 is better than expected."
Citi expects DRAM prices to rise 62% year-over-year in 2024 and noted that DRAM prices seem poised to increase by 15% in the third quarter of 2024, surpassing the anticipated low double-digit growth. Citi's semiconductor analysts recently revised their 2024 DRAM pricing forecast from a 53% year-over-year increase to 62%, citing limited supply growth and memory manufacturers allocating capacity to high-bandwidth memory (HBM).
"We expect upside to guidance when $Micron Technology (MU.US)$ reports earnings in September," analysts noted.
Currently, Wall Street analysts have an average price target of $168.50 for Micron, indicating a 68% upside potential.
Bank of America's top stock picks are Nvidia, Broadcom, and KLA
Bank of America analyst Vivek Arya is optimistic about a rebound in the semiconductor market. He stated that as seasonal headwinds ease, chip stocks could rally in the fourth quarter, highlighting $NVIDIA (NVDA.US)$, $Broadcom (AVGO.US)$, and $KLA Corp (KLAC.US)$ as top picks. Arya emphasized these companies as the most profitable suppliers in their respective end markets. He also mentioned that Arm, Micron Technology, and $ON Semiconductor (ON.US)$ could benefit from a stronger-than-expected recovery.
Arya noted that so far, the chip "upcycle" has lasted only four quarters, during which the PHLX Semiconductor Index rose 28%. Previous cycles have averaged 10 quarters, driving the index up by 67%.
Piper Sandler's top picks are Nvidia and AMD
Piper Sandler analysts issued a bullish report on August 7, highlighting a "tremendous opportunity" for investors to buy certain chip stocks following a recent selloff in the sector.
Piper Sandler's Harsh Kumar wrote, "Fundamentally, NVDA remains the strongest player in the AI accelerator space," underscoring the company's next-generation chips. "We also believe that strong tailwinds from the Blackwell architecture coming in October will continue to drive revenues well into 2025 as demand exceeds supply."
Kumar noted that aside from Nvidia, $Advanced Micro Devices (AMD.US)$ remains a "Top Pick" due to its foothold in the traditional server market, where it competes against established players like Intel.
Notably, AMD is also a formidable competitor to Nvidia. Last year, AMD introduced the MI300 series to rival Nvidia's H100 data center GPUs. In Q2 2024, MI300 sales surpassed $1 billion for the first time, prompting AMD to raise its annual sales forecast from $4 billion to $4.5 billion. AMD plans to release the MI350 series in 2025, which will directly compete with Nvidia's next-generation Blackwell chips expected to launch this year.
Morgan Stanley Bullish on TSMC
Morgan Stanley has designated $Taiwan Semiconductor (TSM.US)$ as a "top pick" following its sharp decline on August 5, dubbed "Black Monday."
"We like TSMC’s quality and defensive nature during an elongated semi down-cycle,” analysts led by Charlie Chan wrote in a note. They cited price increases and ongoing robust capital expenditure in the AI sector as key catalysts for TSMC.
Additionally, the stock is trading at 16 times projected earnings for 2025, a valuation the analysts describe as “attractive again."
Source：Bloomberg, The Motley Fool, Yahoo Finance, Seeking Alpha
by moomoo News Olivia
by moomoo News Olivia
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