Monty Rakusen
AMD (NASDAQ:AMD), Arm (NASDAQ:ARM) and Nvidia (NASDAQ:NVDA) were among the semiconductor stocks in focus on Tuesday as Evercore ISI initiated coverage on the sector.
Nvidia, AMD, Broadcom (AVGO), Marvell (MRVL) and ARM were part of a group to receive Outperform ratings, while Intel (INTC) and Qualcomm (QCOM) received In Line ratings.
Texas Instruments (TXN), Analog Devices (ADI), NXP Semiconductors (NXPI), ON Semiconductor (ON), Astera Labs (ALAB), Microchip Technology (MCHP), GlobalFoundries (GFS), MACOM Technology Solutions (MTSI), Allegro MicroSystems (ALGM) and IMPINJ (PI) also received Outperform ratings.
"On the secular side, we favor Tectonic Shift plays in Parallel Processing (NVDA, AMD, AVGO, MRVL) and IoT (TXN, ADI, MCHP and NXPI) as we believe they are positioned in the segments that will post the highest growth," the investment firm wrote. "Cyclically, we believe that this upcycle lasts into 1Q/2Q-2025, although analog/MCU could extend through the end of 2025 due to the delay those companies had in experiencing their inventory correction. In the meantime, we do believe the group could see a mid-cycle correction in 3Q/4Q-2024, which we would use as a particular buying opportunity before the end of the cycle."
Earnings and revenue for most semiconductor companies have already hit the lowest levels or are in the process of doing so, with some "well below trendline," the firm said. And with the idea that most semiconductor companies are "largely" shipping below consumption, excess inventories are being worked off and a V-shaped recovery is likely to occur, with upward revisions over the next 12 months likely to occur.
"We believe that this has already started on the Compute and Networking side of semis, and will start to happen to the Analog/MCU companies, particularly those exposed to IoT end markets," the firm wrote.
Even though the firm put an Outperform rating on most of the stocks, there is still the risk for a "mid-cycle correction" in short order, Evercore warned.
"Over the past 15 years, Semis have often experienced a mid-cycle correction that coincides roughly with YoY revenue growth peaks," the firm wrote in the note. "In aggregate, we forecast [year-over-year] growth for the industry to peak in 1Q25, which suggests a risk for a mid-cycle correction in 4Q24. That said, in this past down cycle, the industry saw material divergence in the inventory and stock correction cycles with compute-based companies suffering from the inventory correction well before analog-MCU stocks. Given this change in cycle dynamics, we think there could be a change in the mid-cycle correction pattern, with compute companies experiencing it earlier (3Q24 timeframe) and analog/MCU experiencing it later (1Q25 timeframe)."