Semiconductor stocks fell sharply in recent days, pressured by a combination of macroeconomic headwinds and disappointing earnings results amid high expectations.
According to Citi analysts, consensus estimates declined by 11% during earnings season, primarily due to downside from Intel (NASDAQ: NASDAQ:INTC), GlobalFoundries (NASDAQ: NASDAQ:GFS), Microchip Technology (NASDAQ: NASDAQ:MCHP), and NXP Semiconductors (NASDAQ: NASDAQ:NXPI).
This decline is attributed to slower-than-expected analog inventory replenishment and downside risk from the automotive end market, which constitutes 14% of semiconductor demand.
However, the analysts remain bullish on the sector, stating that "the main reasons we are positive – AI and memory strength – remain intact."
Micron Technology (NASDAQ: NASDAQ:MU) remains Citi’s Top Pick. The bank’s analysts believe that "it’s time to double down as the DRAM upturn should persist given reduced capacity and DRAM pricing in 3Q24 is better than expected."
The DRAM market continues to improve, with strong performances from Samsung (KS:005930) and SK Hynix. Citi expects DRAM pricing to rise 62% year-over-year in 2024, noting that DRAM pricing appears set to increase by mid-teens in 3Q24, surpassing expectations of a low double-digit increase.
Citi’s semiconductor analysts recently revised his 2024 DRAM pricing forecast from a 53% year-over-year increase to 62% due to limited supply growth and memory makers’ capacity allocation to high-bandwidth memory (HBM).
Despite weaknesses in the automotive and industrial end markets, demand trends from the three largest end markets – PCs, handsets, and servers, which together account for 61% of semiconductor demand – are relatively healthy.
Micron indicated that inventory in the traditional data center market improved in the first half of 2024 and foresees growth in the second half.
"We expect upside to guidance when Micron reports earnings in September,” analysts noted. The memory chipmaker's shares fell over 30% in the past month, returning to the lowest levels since February.
Overall, Citi analysts forecast semiconductor sales growth of 14% in 2024, reaching $603.2 billion. They anticipate roughly seasonal growth in the third and fourth quarters of 2024, following above-seasonal growth in the second quarter.
Also, they project units excluding discretes to increase by 3% year-over-year and average selling prices (ASPs) to rise by 13% year-over-year.
Apart from Micorn, the bank’s other Buy-rated semiconductor stocks include AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Analog Devices (NASDAQ:ADI), Microchip Technology, NVIDIA (NASDAQ:NVDA), andKLA Corporation (NASDAQ:KLAC).