Investment firm Citi (C) sees a strong earnings season ahead for semiconductor companies and has named Nvidia (NVDA), Broadcom (AVGO), NXP Semiconductors (NXPI), and Analog Devices (ADI) as its top picks. In a note to clients, five-star Citi analyst Atif Malik said that he expects earnings estimates across much of the semiconductor sector to rise. He added that chips tied to data centers are the most attractive right now due to strong AI and server demand, followed by analog chips, which are coming off low inventory levels and weak margins.
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Looking more closely, Malik said that the recent pullbacks in AI-related stocks have created appealing entry points for Nvidia and Broadcom. He noted that concerns tied to companies like OpenAI and Oracle (ORCL) have weighed on sentiment, even as demand continues to improve. According to Malik, computing and networking needs for next-generation AI models are accelerating, which should support upside for both stocks. He also pointed to comments from Nvidia at CES and a recent increase in long-term sales and spending expectations from TSMC (TSM) as additional positives.
On the analog side, Malik said that the market appears to be approaching a recovery, though it remains unclear how long it will last. Given that uncertainty, he sees Analog Devices and NXP as the most attractive options based on valuation. At the same time, he struck a more cautious tone on Qualcomm (QCOM). More specifically, he expects the stock to fall after earnings, partly due to worries about losing modem business from Apple (AAPL). In contrast, Malik expects NXP shares to move higher.
Which Semiconductor Stock Is the Better Buy?
Turning to Wall Street, out of the four top picks mentioned above, analysts think that NVDA stock has the most room to run. In fact, NVDA’s average price target of $263.44 per share implies more than 47% upside potential.
