Despite the recent correction in semiconductor stocks, investment firm Citi said it is still bullish on many companies in the space after speaking to investors, with AMD (AMD) getting most favored status.
“AMD was the stock with the most buying momentum given higher EPS growth in C27 and our feedback indicates the analyst day helped with revenue/margin targets and EPS target of $20,” Citi analyst Christopher Danely wrote in a note to clients.
Broadcom (AVGO) is likely still a “top holding” for investors, but there has been some unease about the “lack of clarity” on any upside from merchant TPUs. “We would expect a move upward following the print next month,” Danely added.
And while Nvidia (NVDA) has been the preeminent AI-related name for nearly two years now, Danely said conversations with investors show it has become “less popular” than AMD or Broadcom, given lower earnings per share growth.
Investors also appear to be getting more bullish on Intel (INTC), given the speculation about the foundry operations and the belief that its server CPU business is improving. “While we agree legacy server CPU business is improving, we still see no path to profitability in the foundry business,” Danely added.
Danely also noted that investors have pushed back somewhat on the belief that Micron (MU) and semiconductor capital equipment firms will be in a prolonged bullish stance. Doubts have cropped up that Micron will be unable to hit the peak margins it saw in 2017, while other concerns have arisen in recent weeks that total wafer fab equipment spending could surpass $120B.
Lastly, investors are still negative on the analog portion of the semiconductor business, except for Analog Devices (ADI).
“We realize the analog space is likely dead through year end but we’re still confident in upturn at some point given low inventory and depressed margins,” Danely added. “It was readily apparent that analog was dead with ADI being the one stock investors were holding. TXN appears to be the top short in the space given belief consensus EPS will keep drifting lower.”