JPMorgan analysts predict that semiconductor stocks are set to continue their upward trajectory, driven by robust market fundamentals and growing demand, particularly from the AI sector.
In their latest research note, analysts at the bank highlight that the semiconductor industry, including semi, semicap, and EDA segments, has shown remarkable resilience and is expected to maintain its multi-year stock outperformance.
JPMorgan explains that the custom chip (ASIC) market is experiencing accelerating demand due to advancements in AI, with a projected market size of $20-30 billion and an anticipated growth rate of 20%. Key players like AVGO (Broadcom (NASDAQ:AVGO)) and MRVL (Marvell (NASDAQ:MRVL) Technology) are expected to dominate this sector.
Additionally, AI data center leveraged plays such as ARM and ALAB are said to be gaining traction.
The investment bank believes several factors are contributing to the strong performance of semiconductor stocks. The sector's foundational role in technological innovation, the emergence of new drivers like cloud data centers, electric vehicles (EV), Internet of Things (IoT), and AI/deep learning, and a shift towards lower cyclicality due to end-market diversification and disciplined supply growth all play crucial roles.
According to the firm, this lower cyclicality has led to a focus on profitability and free cash flow expansion, with strong capital returns to shareholders.
JPMorgan forecasts semiconductor industry revenues to grow by 6-8% in 2024, following an 8% decline in 2023. They remain optimistic about semiconductor stocks, expecting positive supply and demand trends and earnings revisions to drive the market higher in 2024 and 2025.
Their top picks include AVGO, MRVL, MU, ADI, MCHP, KLAC, and SNPS, with additional recommendations for NVDA, AMAT, LRCX, ARM, and SLAB.