On Tuesday, Citi expressed a positive outlook on the U.S. semiconductor sector, indicating that the recent downturn is nearing its end and suggesting that it may soon be an opportune time to invest in the industry.
Following a period where consensus estimates fell by 11% during earnings season and the SOX index experienced a 9% drop, primarily affected by the performance of Microchip Technology Inc . (NASDAQ:MCHP), NXP Semiconductors (NASDAQ:NXPI), and Intel Corp . (NASDAQ:INTC), Citi analysts now believe the sector is poised for a shift in focus to 2025.
The firm anticipates a 9% year-over-year increase in global semiconductor sales in 2025, building on a 17% growth observed in 2024. The current downturn in the industrial end market is expected to ease soon, and the correction in the automotive end market is projected to conclude in the first half of 2025. According to Citi, the remaining 75% of semiconductor demand remains robust.
Citi's analysts recommend that investors start accumulating positions in semiconductor stocks, advising a more aggressive approach as the first quarter of 2025 approaches.
The firm has given a 'buy' rating to several companies within the sector, including Analog Devices Inc. (NASDAQ:ADI), Advanced Micro Devices Inc. (NASDAQ:AMD), Broadcom Inc. (NASDAQ:AVGO), Microchip Technology Inc. (MCHP), Micron Technology Inc. (NASDAQ:MU), Texas Instruments Incorporated (NASDAQ:TXN), NVIDIA Corporation (NASDAQ:NVDA), and KLA Corporation (NASDAQ:KLAC).
Investors are encouraged to consider these buy-rated names as the semiconductor industry navigates through the current challenges and moves towards a potential recovery in the coming years. Citi's analysis suggests that the worst of the sell-off may be concluding, opening a window for investment ahead of the anticipated growth in the semiconductor market.
In other recent news, Texas Instruments (TI) has reported a series of significant developments. The company has initiated the production of gallium nitride (GaN)-based power semiconductors at its Aizu, Japan facility, increasing its GaN manufacturing capacity fourfold.
This move comes as part of TI's goal to internalize more than 95% of its GaN chip production by 2030. In addition to this, TI is scaling its GaN chips to higher voltages to further improve power-efficiency and size in applications such as robotics and renewable energy.
On the financial front, TI reported a mixed Q3 2024 earnings call with a 9% sequential revenue increase to $4.2 billion, despite an 8% year-over-year decline. The company's CFO, Rafael Lizardi, noted a gross profit of $2.5 billion and net income of $1.4 billion, equivalent to $1.47 per share. Over the past year, Texas Instruments returned $5.2 billion to shareholders, including a 5% dividend increase.
In terms of analyst notes, BofA Securities has revised its price target for Texas Instruments, reducing it to $215 from $220 while maintaining a Neutral rating. The revision reflects concerns over the company's sales growth and margin pressures, particularly in its largest segment. These recent developments provide insights into the company's performance and market expectations.
InvestingPro Insights
Adding to Citi's positive outlook on the semiconductor sector, recent data from InvestingPro provides further context for Texas Instruments Incorporated (TXN), one of the buy-rated companies mentioned in the report. Despite the industry's recent challenges, TXN has shown resilience, with a strong 50.84% price total return over the past year and trading near its 52-week high at 97.95% of that peak.
InvestingPro Tips highlight TXN's financial stability and shareholder-friendly policies. The company has maintained dividend payments for 54 consecutive years and has raised its dividend for 21 consecutive years, demonstrating a commitment to returning value to shareholders even during industry downturns. This consistent dividend growth aligns with Citi's view that the sector may be approaching an inflection point, making it an attractive option for investors looking for both growth potential and income.
However, investors should note that TXN is currently trading at a high P/E ratio of 40.77 (adjusted for the last twelve months), which may reflect market optimism about future growth prospects. This valuation should be considered in light of Citi's projections for the semiconductor industry's recovery and growth in 2025.
For those interested in a deeper analysis, InvestingPro offers 18 additional tips for Texas Instruments, providing a comprehensive view of the company's financial health and market position as the semiconductor sector prepares for a potential upswing.
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