Nvidia Left Out, But These Chip Stocks Make The Cut As Barclays’ Preferred Picks: ‘There Isn’t A Ton Of Low-Hanging Fruit At These Levels’

Semiconductor stocks rallied sharply in 2023, with the sector among the best-performing S&P 500 sector classes. Against the backdrop, an analyst said on Tuesday he views the group as expensive on the 2024 estimates but remains positive about names levered to the “2nd Wave of AI.”

What Happened: Barclays analyst Tom O’Malley said in a note he remained below the 2024 consensus estimates for nearly two-thirds of his coverage universe. Investor focus, however, has shifted to 2025, the analyst said, adding that he expects robust positive inflection for most end markets.

KeyBanc Capital Markets analyst John Vinh said in a note on Tuesday that most end markets, except those for non-AI servers and Android smartphones, remained weak in the fourth quarter.

O’Malley’s optimism regarding the 2025 outlook is not across the board. “Even factoring in a strong growth year in ’25, there isn’t a ton of low-hanging fruit at these levels,” he said. “We are picking our spots into next year and prefer names levered to the ‘2nd Wave of AI.’”

AMD To Take Lead: Barclays sees Advanced Micro Devices exiting 2024 with an AI revenue run-rate of $4 billion, which will likely increase to more than $7 billion in 2025. “We think the ramp is driven by multiplecustomers across hyperscale and Enterprise and more 2H loaded,” analyst O’Malley said.

Citing channel checks, the analyst said the MI300 AI accelerator has received stronger feedback. The desire to overcome a software barrier from Nvidia Corp. (NASDAQ:NVDA) could serve as a handicap for AMD adoptions, the analyst said. ‘We are by no means discounting the lead that NVDA has but we think the desire to have a second source will overwhelm difficulties for the software ecosystem,” he added.

See Also: Best Semiconductor Stocks

Barclays’ Preferred Names: Barclays listed the following chip companies as the ones it likes, heading into 2024 and the next year.

AMD: Overweight rating maintained and price target upped from $120 to $200
Semiconductor equipment manufacturer Camtek Ltd. (NASDAQ:CAMT): The analyst upgraded the stock from Equal Weight to Overweight and lifted the price target from $65 to $82.
Coherent Corp. (NYSE:COHR): The analyst upgraded the stock from Equal Weight to Overweight and lifted the price target from $38 to…