Ahead Of Semiconductor Earnings, Analysts Expect AI To Serve As 'Shining Pillar' To Guide Through Muted Chip Demand

The tech earnings season gets started in earnest this week and besides AI-levered bellwether stocks such as Alphabet, Inc. GOOG GOOGL and Microsoft Corp MSFT, the Street's focus will also rest on a few large and mid-cap semiconductor and semi-equipment earnings on tap.

The Chip Earnings Schedule:

Tuesday

NXP Semiconductors N.V. NXPI (after the market close)

Texas Instruments, Inc. TXN (after the market close)

Wednesday

Silicon Laboratories Inc. SLAB (before the market open)

Terdyne Inc. TER (after the market close)

Lam Research Corporation LRCX (after the market close)

Thursday

Intel Corporation INTC (after the market close)

KLA Corp. KLAC (after the market close)

Among those reporting next week are Advanced Micro Devices, Inc. AMD, which is scheduled to release its second-quarter results on Tuesday, Aug. 1, after the market close; and On Semiconductor Corp ON, which will report on Monday, July 30, after the market close.

AI – The Shining Pillar:  Drawing an inference from chip foundry Taiwan Semiconductor Mfg. Co. Ltd.’s TSM quarterly results, KeyBanc Capital Markets analyst John Vinh said he expects AI to be a "shining pillar of strength" amid a muted semiconductor demand backdrop.

The analyst noted auto demand remains healthy and the industrial end market has shown resilience. All consumer-facing segments, including PCs and smartphones, showed softness, he added.

Mizuho Securities analyst Vijay Rakesh noted accelerating demand for generative AI will likely drive demand for hardware suppliers powering higher compute needs for large-language models. Nvidia Corp. NVDA, in particular, will be a big beneficiary, thanks to its Hopper and Grace GPUs. The analyst expects AI server unit penetration to reach about 11% by the calendar year 2027, and Nvidia will likely reap AI-specific revenue of about $300 billion, assuming a 75% market share.

See Also: Best Semiconductor Stocks

NXP Semiconductors To Drive Higher On Auto Demand: KeyBanc's Vinh noted NXP's exposure to the auto and industrial end market is about 70%. Supply tightness seen in auto-grade MCUs and extended lead times bodes well for NXP and will likely help it override softness stemming from broad-based China weakness, the analyst said.

Morgan Stanley analyst Joseph Moore noted NXP outperformed its analog peers year-to-date due to end-market positioning and proactive inventory management. The analyst said investors will likely look forward to second-half execution as end market recovery remains muted.

Texas Instruments Suffers From China Weakness, Execution: Vinh said he expects TI to report in-line to slightly lower results due to broad-based weakness in China, price cuts and exposure to consumer-facing end markets.

Morgan Stanley has an Underweight rating on TI due to cash and margin headwinds from the capex plan. Moore expects the company's consumer-exposed businesses to get closer to a  bottom.

The reversal of near-term headwinds does not suggest the company is out of the woods yet, as it still faces risks arising from elevated capital spending and market share erosion, he added.

Silicon Labs Could Report In-Line: KeyBanc's Vinh expects in-line results and in-line to slightly lower guidance from Silicon Labs due to a slowdown in Home & Life, which accounts for 44% of revenue. He also based his muted expectations on weaker China demand and excess inventory. The effects of these sore spots will be mitigated by resiliency in industrial and commercial IoT, he added.

Moore expects the earnings call focus to be on new customer ramps scheduled for the second half.

Analysts Mixed On Intel's Q2: KeyBanc expects Intel to report in-line and issue in-line guidance, as PC and data center demand remains weak. Progress in PC inventory destocking and continued ramp of Sapphire Rapids and modest tailwinds associated with high attach rates in AI servers could serve as offsets, Vinh said.

Morgan Stanley's Moore said the risk-reward for Intel is balanced. The analyst expects second-quarter results to slightly trail the consensus but sees the September quarter coming in ahead of the Street forecasts.

Mizuho’s Rakesh raised the price target for Intel from $30 to $33, citing overall improvement in semiconductor sector price-earnings multiple. “We believe INTC could see some incremental revenue from the AI revolution, but with growth more muted vs. competitors,” he said.

Teradyne In Crosshairs Of Smartphone Weakness: Moore said he expects the continued challenging conditions in the smartphone market to weigh down on Teradyne’s results. Conditions in the robotics market are mixed, he added.

“Key will be the durability of strength in industrial and automotive test,” Moore said. The company’s AI exposure is currently limited but it could see improvement next year if there is a broader ramp from cloud custom silicon, he added.

Semi Equipment Makers To Get AI Boost: Moore expects semiconductor equipment maker Lam Research to report solid results and outlook, as advanced packaging for AI chips, in both logic and memory, and trailing edge foundry offset memory headwinds. Memory businesses were down more than 50%, he noted.

KLA Corp. could report essentially in-line quarter, as a material weakness in memory will likely offset the continued strength in trailing edge logic and advanced packaging for AI.

Semiconductor Price Action: The iShares Semiconductor ETF SOXX edged up 0.057% at $510.96, according to Benzinga Pro data.

Related Link: Semiconductor Winners And Losers Are Growing Apart: Analyst’s Top 10 Stock Picks Including Nvidia, Qualcomm, Texas Instruments

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