Semiconductor Q2 Earnings Preview: Analyst Calls AI 'Shining Pillar Of Strength,' Flags 3 Companies For Favorable Risk-Reward

Semiconductor earnings will begin to roll out in the week of July 24, and an analyst is upbeat despite the chip demand continuing to remain soft.

End Market Analysis: Artificial Intelligence will likely be a "shining pillar of strength" amid a muted semiconductor demand backdrop, said KeyBanc Capital Markets analyst John Vinh in a note previewing the earnings. He flagged limited signs of a recovery in China.

On a positive note, the analyst noted that demand from the auto end market remained healthy and the industrial end market remained resilient. On the other hand, consumer-facing segments such as PCs and smartphones showed weakness, he added.

Best Bets: Vinh named Nvidia Corp. NVDA and Marvel Technology, Inc. MRVL as best suited fundamentally.

Analog chipmakers continue to see favorable risk-reward, the analyst said. He named ON Semiconductor Corp. ON as the best positioned in the group ahead of earnings, especially given the low bar on expectations.

Key Semiconductor Earnings To Watch For:

These companies as having favorable risk/reward going into earnings:

Nvidia

• Earnings Date: Aug. 2023
• Rating: Overweight
• Price Target: $550

Nvidia is best-positioned fundamentally, given its dominant position in generative AI, given outsized demand, Vinh said. The additional chip-on-wafer-on-substrate capacity will likely support continued growth into the second half, even of a high second-quarter base, he said.

The analyst roots for above-consensus quarterly results as well as forward guidance.

Marvel Tech

• Earnings Date: N/A
• Rating: Overweight
• Price Target: $80

KeyBanc said it expects a second-half recovery for Marvel, supported by cloud data center and AI demand for PAM4/DCI. Incremental ASIC AI design wins at AWS and  Google Cloud will likely drive upside to 2024 AI revenue expectations, it added.

Vinh expects in line to slightly higher second-quarter results and higher guidance for the third quarter.

On Semiconductor

• Earnings Date: July 31
• Rating: Overweight
• Price Target: $110

On will be a beneficiary of healthy demand for auto and industrial segments such as alternative energy, Vinh said. The analyst expects this to support strong results and guidance and the continued ramp of SiC to offset China’s weakness.

See Also: Best Semiconductor Stocks

Cautious about the following companies:

Advanced Micro Devices, Inc. AMD

• Earnings Date: July N/A
• Rating: Overweight
• Price Target: $160

KeyBanc said it would be cautious on AMD due to higher Milan inventory, muted server demand, and stability issues with low-power APU “Phoenix”. This poses a risk to the third quarter guidance, the firm said.

Also, the firm said the pushout of M1300X raises concerns related to about 50% of the year-over-year data center growth outlook for the second half.

Texas Instruments, Inc. TXN

• Earnings Date: July 25
• Rating: Overweight
• Price Target: $200

Vinh said weak China demand and continued aggressive price actions should weigh on near-term fundamentals and gross margins.

Semiconductor Stocks’ Price Action: The Invesco PHLX Semiconductor ETF SOXQ, an exchange-traded fund that tracks the performance of the Philadelphia Semiconductor Index, ended Friday's session at $29.55, down 1.10%, according to Benzinga Pro data. The ETF gained roughly 14% in the second quarter and is up about 50% so far this year.

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