The semiconductor sector has seen quite a turnaround of late. Chip stocks were among the worst performers last year, with the iShares Semiconductor ETF (SOXX) shedding more than 35% of its value. But the sector has been quietly regaining those losses, with the index up nearly 50% from its October lows, outperforming the major U.S. indexes. Despite this, chip stocks have flown somewhat under the radar since the beginning of the year as the buzz around artificial intelligence and a recovery in Big Tech dominated investor attention. While the semiconductor sector is notorious for its cyclicality and boom-bust cycles, several Wall Street pros are urging investors to take a longer-term view. “We might be a little ‘dead money’ for the medium-term type of traders, but for the longer-term, you would really be making a bet that fundamentals in the second half of 2023 and then 2024 are really going to be a lot better,” Eric Ross, chief strategist at Cascend Securities, told CNBC’s “Street Signs Asia” earlier this month. A.I. plays Kenny Polcari, chief market strategist at SlateStone Wealth, likes Nvidia for its strength in the semiconductor space, and said the stock is a play on AI. It comes as the buzz around artificial intelligence is reignited following the viral success of ChatGPT — an AI chatbot developed by Microsoft -backed OpenAI. “I think you really must consider the role that AI is going to play but hasn’t played so far. It has made this quantum leap almost overnight. I think that puts it right smack in the front and center of peoples’ portfolios,” Polcari said. This sentiment is echoed by Altimeter Capital Chair and CEO Brad Gerstner. “We have long admired Nvidia, its leader Jensen and the central role that they play in AI,” Gerstner said Thursday on CNBC’s “Halftime Report.” “Over the course of the last two years, we’ve seen a massive acceleration, evidenced by OpenAI and the work that Microsoft is doing, what Google is doing, etc.” Sylvia Jablonski, CEO at Defiance ETFs, named Nvidia, Advanced Micro Devices and NXP Semiconductors as “leaders in data centers” and said the companies are going to “power the engines” of AI. Asia opportunities UBS, meanwhile, sees pockets of opportunities emerging in Asia’s semiconductor industry. “We think that leading Asia semiconductor companies are poised to drive an outperformance in the Asia tech sector in the next 6–12 months,” Mark Haefele, chief investment officer, UBS Global Wealth Management, wrote in a note on Friday. “Within the sector, we favor memory chipmakers, leading-edge foundries, and select fabless chip designers.” UBS said margins in Asian semis were likely to recover as supply-demand dynamics improve in the second half of the year, while earnings growth outlook for next year also look robust. Rand Wrighton, head of international equities at Barrow Hanley Global Investors, is a fan of South Korean chip maker SK Hynix and Taiwan’s Mediatek . “Hynix is looking to lower capex by more than 50% That’s typically what you see when you mark the bottom, and we think that in the back half of the year you’re going to see trends improve in both smartphones and servers PCs, into a position that stocks will move quickly, as those green shoots really appear,” Wrighton told CNBC’s “Street Signs Asia” on Monday. Europe stock ideas In Europe, a raft of chip stocks made Bank of America ‘s list of “2023 European Best Stock Ideas.” “We think investors should position for semis to outperform the broader equity markets 3-6 months ahead of an inflection in fundamentals in 3Q23,” Bank of America’s analysts, led by Didler Scemama, wrote on Feb. 7. The bank added that the sector will benefit from secular themes such as the re-shoring of manufacturing and the acceleration in electrification and digitalization. Bank of America’s top pick is ASM International . It also has buy calls on ASML and STMicroelectronics . — CNBC’s Michael Bloom contributed to reporting
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