Key insights
- Citi views the recent pullback in the semiconductor sector as healthy, maintaining buy ratings on Broadcom, Texas Instruments, and Applied Materials. Despite some supply constraints, particularly for Nvidia's platform, the firm remains constructive due to strong demand in data centers driven by AI and emerging server CPU needs, alongside positive trends in automotive and industrial markets. While PC, handset, and consumer markets remain weak, the overall demand backdrop is seen as supportive for the sector.
Investing.com -- Citi told investors in a note on Monday that it views the recent pullback in semiconductor stocks as healthy and maintains three key names as its top buy-rated picks in the sector.
Broadcom, Texas Instruments, and Applied Materials are the stocks in question.
The Philadelphia Semiconductor Index has risen 61% quarter to date, far outpacing the S&P 500's 13% gain over the same period, led in descending order by memory, compute, analog, and semiconductor capital equipment stocks.
Calendar year 2027 consensus EPS estimates for semiconductor and semiconductor equipment stocks rose by an average of 12% and 11%, respectively, during the most recent earnings season.
Citi said investor focus is shifting toward supply bottlenecks in 2027, citing commentary from Broadcom and Ciena pointing to constrained supply, as well as reports that Nvidia is de-specing DRAM in its Vera Rubin platform due to limited availability.
"We believe investor focus shifts to supply bottlenecks in 2027," the firm wrote.
Despite the near-term supply concerns, Citi said the demand backdrop remains broadly constructive, with approximately 58% of semiconductor end-market demand improving, with data centers, representing 34% of total semiconductor demand, remaining strong due to AI infrastructure buildout and emerging server CPU demand for agentic applications.
Automotive and industrial end markets are also said to be showing above-seasonal or seasonal trends.
The bank added that PC, handset, and consumer end markets, collectively representing 42% of semiconductor demand, remain weak due to lower unit growth from rising memory costs and component shortages.
"We remain constructive on the group as end demand is strong/improving across four of the seven semis end markets," Citi concluded.
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