Morgan Stanley's Semiconductor Picks: Why It's Bullish On Qorvo, Sidelined On Qualcomm, LAM

Morgan Stanley raised its industry view on semiconductors from In-Line to Attractive on Friday, saying it expects to see the market turn more positive on the device side as an inventory correction runs its course in the first half of 2024.

“The seeds for the current cycle view were planted during the shortages of 2021-22. As normally happens, that led to severe inventory excess,” said analyst Joseph Moore.

That doesn’t mean there won’t be a recovery, he explained — as enthusiasm for systems such as artificial intelligence (AI) in all its forms will continue to drive demand for processing power.

Preferring the devices side over semi-cap — which are the companies that produce equipment used in the manufacture of semiconductors — Morgan Stanley said computing is its top industry, given the AI boom. It downgraded the semi-cap industry to Cautious.

Qorvo Upgraded

Shares in Qorvo Inc QRVO traded higher Friday after it was upgraded from Equal Weight to Overweight and bumped the price target from $120 to $134.

“The momentum from a China Android snapback and content gains from 5G transition should drive revenue growth and expand gross margins. The stock looks inexpensive despite having some of the best earnings growth expectations out of our smartphone names,” Moore said.

The company had a record year at both Samsung and Apple in 2023 and Moore said he expects it to continue its content gains. gains.

Also Read: Comparing Analog Devices With Industry Competitors In Semiconductors & Semiconductor Equipment Industry

Qualcomm Downgraded

Morgan Stanley downgraded Qualcomm QCOM from Overweight to Equal Weight and raised the price target from $119 to $132.

“Qualcomm’s strong execution in the last two-three years has resulted in stronger-than-normal market share and pricing, which creates a tough bar going forward,” Moore said.

He added:: “In some ways, Qualcomm is a victim of its own success. We admire what it has accomplished, but from here the company is looking at market share loss and a lack of future growth drivers.”

Lam Research Downgraded

The analyst firm also lowered its rating on Lam Research LRCX, whose products are used in semiconductor wafer processing, from Overweight to Equal Weight with a price target of $720.

“It still remains our Top Pick in the semi-cap space, but we do expect challenges next year,” Moore said.

“Looking into 2024 we expect a recovery in memory utilization to dampen hope around a V-shaped recovery and see limited margin upside.”

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