COHU - Cohu Coherent Advanced Energy rise as Citi upgrades on belief 'group has bottomed'

Cohu ( NASDAQ: COHU ), Coherent ( NASDAQ: COHR ) and Advanced Energy Industries ( NASDAQ: AEIS ) rose on Friday after investment firm Citi upgraded the semiconductor capital equipment companies on the belief that the "group has bottomed."

Analyst Atif Malik raised the firm's ratings on Cohu ( COHU ), Coherent ( COHR ) and Advanced Energy Industries ( AEIS ) to buy from neutral, noting that there are three reasons for the belief that the group has "bottomed:" the collapse in memory pricing; a "dislocation" in domestic Chinese spending; and estimates for 2023 wafer fab equipment fell 20% or more and have now stabilized.

"Stocks generally rebound once memory prices hit cash costs (NAND down 50% in [second-half of 2022]) and forward estimate revisions bottom approach prior macro corrections," Malik wrote in a note to clients.

The analyst added that the estimate for 2023 spending on wafer fab equipment could drop from roughly $70B to $65B or even $60B, but "the big Street estimate cut is done, in our view."

Cohu ( COHU ) gained more than 3% to $31 in premarket trading, while Advanced Energy Industries ( AEIS ) tacked on 1% and Coherent ( COHR ) rose 2.5%.

The analyst added that there are a few key debates among investors right now, including whether wafer fab equipment spending in 2024 will be up or down. Right now, the firm is modeling $78B in spending for 2024, below the previous view of $88B.

Other debates include whether China can grow or whether it will reduce wafer fab equipment spending, with Citi leaning towards the latter.

"We do not expect China to be a region of meaningful capacity expansion for the multinational memory or foundry makers in the foreseeable future despite granted licenses with the option  to renew annually," Malik penned.

There's also a debate over whether silicon carbide materials continue to grow at more than 30% compounded annually, due in large part to the growing demand for electric vehicles, an area where Wolfspeed ( WOLF ) and Coherent ( COHR ) appear poised to do well.

"We believe Wolfspeed has 2+ years first mover advantage on 200mm wafers with Coherent in second place," Malik explained.

Last month, Coherent ( COHR ) named Dr. Julie Sheridan Eng as the company's new Chief Technology Officer .

Analysts are mostly positive on Coherent ( COHR ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates COHR a SELL .

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