After a miserable performance in 2022, semiconductor stocks are looking for a comeback in 2023. Analysts say key segments to watch include cloud computing, electric vehicles and semiconductor equipment.
Last year, the Philadelphia semiconductor index, known as SOX, fell 36% vs. a 19% drop for the benchmark S&P 500 index. The SOX includes the 30 largest semiconductor stocks traded in the U.S. Investors dumped chip stocks amid weak demand for PC, gaming, smartphone and memory chips.
BofA Securities analyst Vivek Arya said he is most bullish now on semiconductor equipment makers. He sees chip gear makers gaining from semiconductor firms building fabrication plants, or fabs, outside of China and Taiwan to lessen their exposure to that region.
"Localization and duplication of global supply chains could drive a decade of new fab construction and tooling spurred by $150 billion+ of government grants and tax incentives," Arya said in a note to clients Tuesday.
Chip Gear Firms Named 'Top Picks'
Arya named semiconductor equipment stocks Applied Materials and KLA as "top picks" as they benefit from "reshoring" initiatives.
Also, the rising complexity of semiconductors is spurring investment in new wafer fab equipment, he said.
Other key investment themes for 2023 include the growth of generative artificial intelligence and electric vehicles.
"There is no ignoring the excitement in the emerging field of generative AI that is helping create novel text, image and video content, and large productivity gains in a wide range of applications," Arya said. Among semiconductor stocks, Arya likes Nvidia for its strength in artificial intelligence and cloud computing.
In electric vehicles, he likes chipmakers Analog Devices, NXP Semiconductors and Onsemi.
Semiconductor Stocks On IBD Stock Lists
Mizuho Securities analyst Vijay Rakesh said top segments among chip stocks for 2023 include semiconductor equipment, data centers and automotive.
Wafer fabrication equipment firms are buffered by strong backlogs, which will keep sales elevated, Rakesh said in a note to clients Monday. His top picks in the segment include Applied Materials and Lam Research.
In the data-center market, Advanced Micro Devices and Nvidia are likely to benefit from the launches of new graphics processing units, he said.
In the resilient automotive chip market, Rakesh said semiconductor stocks Allegro MicroSystems and Onsemi are well positioned.
The IBD Tech Leaders list currently includes 23 chip stocks. The more selective IBD 50 list of top-performing growth stocks features five semiconductor stocks, including Lattice Semiconductor and Axcelis Technologies.
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