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While caution remains throughout the semiconductor industry, Wells Fargo has selected Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) among its top chip stocks for 2023 amid pockets of optimism in certain areas of the sector
“We enter 2023 with a continued cautious view on the overall semiconductor cycle,” Wells Fargo analysts wrote in a note to clients, adding that expectations going forward have not been “adequately removed.”
“That said, we believe a down-cycle bottom can be established as we move forward (the first half of 2023),” the Wells Fargo analysts wrote.
However, the Wells Fargo team added that investors should be “prudent and invest” in high-quality, secular growth stories, including artificial intelligence, automotive and electronic design automation.
Analysts see overly negative investor sentiment on AMD (AMD) as investors underestimate CPU market share gains in the server space, and AMD’s 96-core Genoa EPYC product cycle ( AMD) rises and its 128-core Bergamo EPYC products are first. half of this year.
“We model AMD to gain (5 percentage points) incremental share of server CPUs through 2023” with more gains than declines expected, analysts wrote of the company’s top overall pick.
They also noted that estimates for AMD (AMD), which generates a significant portion of its sales in the PC space, have been “properly removed” as investors expect its PC-related revenue to decline 43% year-on-year. after year. in the first half of the year and 16% throughout 2023.
Nvidia (NVDA) is also viewed positively, Wells Fargo said, largely due to its improved data center product cycle this year and overly negative investor sentiment around “platform/strategic importance.” of its 144-core Arm-based product. Launch of the Grace/Grace Hopper superchips in the first half of the year.
The Wells Fargo team said that with Nvidia’s (NVDA) Lovelace GeForce RTX-4xxx series product cycle, “We believe Nvidia can continue to provide investors with the confidence of a bottoming-out gaming segment” and that the product channel replenishment potential will be activated during the first half of this year.”
They added that Nvidia’s (NVDA) ability to generate revenue from software is likely to show more this year, while the company’s automotive business could experience a turning point.
Analysts also highlighted Micron Technology (NASDAQ:MU), but said it’s more of a story for the second half of the year, given how weak the memory industry currently is.
“We continue to view data center and automotive as key drivers of long-term secular growth in memory,” the Wells Fargo analysts wrote, adding that bit production cuts and inventory depletions “still have a long way to go.”
Other names Wells Fargo welcomed were Marvell Technology (NASDAQ:MRVL), Cadence Design Systems (CDNS), Synopsys (SNPS), NXP Semiconductors (NXPI), Wolfspeed (WOLF), Ambarella (AMBA), Allegro MicroSystems (ALGM) and Rambus (RMBS).
Semiconductor companies that are tied to the smartphone space are likely to underperform in a “risk-on market,” and the company reiterates its underweight rating on Qualcomm (QCOM).
In December, UBS said it was bullish on chips by 2023, picking Nvidia (NVDA) as one of its top picks as it forecast momentum picking up in the second half of the year.
