JPMorgan analyst Harlan Sur shares an optimistic outlook for the semiconductor industry in anticipation of the Q1 earnings season.
The sector, including semiconductors, semiconductor capital equipment (semicap), and chip design software (EDA/IP), has continued to outperform broader indices YTD. The iShares Semiconductor ETF
The outperformance has been fueled by expectations of cyclical bottoming and positive earnings revisions.
Key Trends Driving Semiconductor Growth
"From an industry perspective, we expect semi industry revenue to improve 6-8% Y/Y in 2024 ...following an 8-10% decline in CY23," said Sur. Key trends that he sees driving this performance include:
- Accelerated Compute and AI Demand: Sur highlights the ongoing trend of accelerated compute and AI demand. Industry bookings and an improving supply-demand balance support stand as catalysts here and are expected to persist into 2024/2025.
- Auto and Industrial Recovery: Sur also pointed to signs of recovery in the auto and industrial segments, with this quarter likely marking the bottom of the cycle. He anticipates positive order trends and a more synchronized recovery across different end markets.
- Memory Industry Upswing: Sur notes the memory industry's positive momentum, driven by strong pricing and demand trends. Memory content gains from AI and accelerated compute deployments, along with supply disruptions, are expected to drive higher pricing.
- Semiconductors: Sur highlights Broadcom Inc
(AVGO ) , Marvell Technology Inc(MRVL ) , Micron Technology Inc(MU ) , Analog Devices, Inc.(ADI ) and Microchip Technology Inc(MCHP ) as top picks in the semiconductor space. - Semiconductor Capital Equipment (Semicap): KLA Corp
(KLAC ) stands out as the top pick in semicap space. Sur sees near-term fundamentals beginning to improve for KLA and set to grow in the second half of the year. - Chip Design Software (EDA/IP): Sur recognized Synopsys Inc
(SNPS ) as a top pick in chip design software. The company should be driven by strengthening demand and strong growth prospects due to increasing chip design complexity and AI infrastructure build-out.
