TSM - Analog Devices remains Citi's top chip pick as earnings wind down

2023-05-15 08:16:48 ET

Investment firm Citi said on Monday that Analog Devices ( NASDAQ: ADI ) is still its top stock in the semiconductor industry as earnings season showed the sector still has a way to go.

Analyst Christopher Danely noted there has been a trend of "negative" earnings revisions, though there are still positives for the industry, as PC sales look to be stabilizing and artificial intelligence is driving growth, even if it accounts for a fraction of overall chip sales.

In addition, Danely said it looks as if the handset market is "close to a bottom," even if earnings were "quite ghastly."

Negatives for the industry include the fact that excess inventory remains for most markets, including wireless, industrial, consumer, data center and now automotive, while pricing is "moving back to historical norms of consistent decline."

Companies such as Taiwan Semiconductor ( TSM ), Mobileye ( MBLY ) and Tesla ( TSLA ) all had negative data points coming out of earnings, leading Danely to believe that the automotive market is likely to "correct when lead times revert to normal in late summer/early fall."

Analog chip companies such as Microchip ( MCHP ) and STMicroelectronics ( STM ) also saw negative business trends during the quarter, including push outs and concerns over pricing, adding to worries.

"We maintain our defensive stance on semis with ADI being our top pick," Danley wrote in an investor note.

Danely added that once the downturn ends, the top semiconductor stocks to own are Micron Technology ( MU ), AMD ( AMD ), ON Semiconductor ( ON ) and GlobalFoundries ( GFS ).

Separately on Monday, Analog Devices ( ADI ) said it would invest €630M in a new semiconductor and research facility in Ireland.

More on semiconductors

• Nvidia is the picks and shovels leader in the 'AI gold rush,' BofA says
• What happened during the White House meeting on artificial intelligence?
• Citi reiterates buys on Micron, Samsung, SK Hynix as memory looks to recover

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