By Senad Karaahmetovic
Despite projections that the U.S. chip sector is likely to experience another challenging year, UBS analysts say they are bullish on the sector for 2023 and see a trading opportunity.
China's reopening is likely to, at least partially, offset weakness from the U.S. and Europe. The analysts expect the chip sector momentum "to really build into CQ2 and 2H:23 before the ISM likely bottoms late in the year."
"Estimate cuts are finally broad enough that they have reached levels that are similar in breadth to other stock bottoms and are down by ~25% in aggregate across the sector. Blown-out lead times and backlogs that are the result of COVID-driven shortages are likely to change how we think investors should approach timing this next upturn," they said in a client note.
The analysts add that they wouldn't be surprised if chip stocks "inflect earlier than prior cycles," the key reason why they upgraded Advanced Micro Devices (NASDAQ:AMD) stock recently.
"AMD and MU remain our focus stocks for 2023 with others that we like including NVDA, MRVL, AVGO, TER, LRCX, and ADI," they added.
Last month, the analysts upgraded AMD stock to Buy, citing key cycle indicators that are turning more positive.