Citi names 5 top chip picks ahead of Q3 earnings

Investing.com -- Citi named AMD, Texas Instruments, Lam Research, Teradyne and Synopsys as its top buy-rated semiconductor picks ahead of third-quarter earnings, as the bank says it is becoming "increasingly selective" on the sector after a sharp rebound.

Analyst Atif Malik noted the SOX semiconductor index has rebounded 24% from its summer correction, in line with Citi’s call ahead of its Technology, Media, and Telecommunications (TMT) conference. The industry remains in "Phase 2" of the bank’s playbook, supported by robust data center demand, which now makes up about 40% of the semiconductor market, and a continuing recovery in auto and industrial markets at about 20% of demand. PC and smartphone demand remains weak.

Estimate revision momentum slowed in the second quarter, and Citi expects further moderation in the third. Networking, semiconductor equipment and analog chips show the strongest momentum, followed by compute and memory.

Citi expects the largest sales estimate revisions in compute, particularly networking names such as Marvell and Astera Labs and CPU-exposed names AMD, Intel and Nvidia. Analog chips from Texas Instruments and Analog Devices come next, then semiconductor equipment makers Lam Research and Teradyne.

"While 4Q is typically a seasonally weaker quarter for analog semis, we expect most companies to guide above seasonal trends," Malik said.

As part of the shift, Citi downgraded three stocks. It cut NXP Semiconductors to Neutral and the price target to $260 from $370, citing weaker estimate revisions than peers and limited data center exposure. It downgraded Universal Display to Sell, with a $71 target from $85, flagging smartphone market weakness next year. It also moved Nova to Neutral, cutting the price target to $415 from $550, saying its risk-reward looks balanced.

Malik said investors’ key debate is a "Power Wall" in 2028, when TrendForce sees interconnection delays and transmission bottlenecks beginning to affect new data center deployments. Citi’s own view is that supply remains sufficient, forecasting global data center supply rising from 140 gigawatts in 2026 to 395 gigawatts by 2031, above expected demand of 370 gigawatts. The bank sees constraints around the timing, location and deliverability of supply, not an absolute shortage.

Malik said investor discussions at the SEMICON and OCP conferences next week will likely shape sentiment ahead of earnings.

Original Article

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