Investing.com -- The recent pullback in semiconductor stocks, driven by surging oil prices, rising bond yields and concerns over AI spending, represents a buying opportunity for the sector, Citi analysts say.

The bank said data centers remain the strongest end market for chips, accounting for 34% of total semiconductor demand, and are on track to exceed the entire semiconductor total addressable market (TAM) by 2030.

Citi also pointed to a recovery underway in the auto and industrial segment, which makes up 21% of the market, while demand from PCs, handsets and consumer electronics, a combined 42% of the market, continues to weaken "due to memory cost inflation and supply constraints."

Reviewing earnings reported so far this season, Citi said consensus revenue estimates for 2026 and 2027 among companies that have reported rose 4% and 7%, respectively, while earnings-per-share estimates increased 7% and 8%.

The bank said it prefers semiconductor capital equipment stocks over semiconductor stocks, citing "higher estimate revisions driven by capex increases."

Citi flagged capital spending commentary from Intel (NASDAQ: INTC), TSMC (NYSE: TSM) and Tesla (NASDAQ: TSLA) as particularly encouraging for equipment makers. Intel raised its 2026 capital expenditure guidance to more than $20 billion from roughly $18 billion previously, driven mainly by tool purchases growing 40% year-over-year, and said it expects 2027 capex to be significantly higher than 2026, with most investment directed toward U.S. manufacturing.

TSMC raised its 2026 capex guidance again, to $60-64 billion from nearly $56 billion, pointing to stronger-than-expected AI demand and higher equipment costs. The company said capital spending over the next three years "will be significantly higher than the prior three years" and announced an additional $100 billion investment in Arizona, bringing its total commitment there to $265 billion and including roughly four additional fabs.

Similarly, Tesla reiterated that its 2026 capex will exceed $25 billion and continue growing over the next two to three years, including investments in semiconductor manufacturing.

On the back end of the supply chain, Amkor (NASDAQ: AMKR) announced a $1.5 billion multi-year partnership with Nvidia (NASDAQ: NVDA) to support U.S. advanced packaging capacity, with Nvidia providing a prepayment to fund the expansion