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Citi analysts remain bearish on semi stocks and believe the additional earnings estimates cuts are coming.
They were some of the first sell-side analysts to call for a correction in the U.S. semiconductor sector. They now say that half of the downturn is over, referring to the massive correction in PC and Wireless sectors. However, they warn the other half is now due to correct, namely companies focused on Data Centers, Industrial, and Auto products.
“Consensus estimates declined again during earnings season as the data center and industrial end markets weakened as previewed. The automotive end market remains strong, driven by extended lead times, but we reiterate our view that it will experience a correction as well once lead times decline. We remain cautious on the group given our belief in additional estimate cuts, driven by the data center/industrial/automotive end markets rolling over,” analysts said in a client note.
The analysts reiterated a Top Pick designation on Analog Devices (NASDAQ:ADI) given the company’s cautious stance. Overall, analysts expect the Philadelphia Semiconductor Index, which tracks the 30 largest U.S. semiconductor companies, to hit new lows and decline 30% from here.
“We believe semiconductor stocks will bottom after every company – including ADI and MCHP – cuts estimates, trades close to trough valuations, and cuts capex,” analysts added.
As far as the sentiment is concerned, the analysts argue it is positive for Advanced Micro Devices (NASDAQ:AMD) and Microchip (NASDAQ:MCHP) and negative for Micron (NASDAQ:MU) and Intel (NASDAQ:INTC).
