By Sam Boughedda
Credit Suisse initiated coverage of semiconductor stocks in a note Wednesday, telling investors the current cycle presents short-term challenges but long-term opportunities.
Analysts explained the firm is initiating the semiconductor devices sector with an Overweight view, as they believe there has been enough bad news.
However, the firm remains selective, with a focus on handsets, which it believes has been most fully derisked, and longer term growth names such as Nvidia (NASDAQ:NVDA), Marvell Technology (NASDAQ:MRVL), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Monolithic Power Systems (NASDAQ:MPWR), which they're willing to accept more short-term risk on.
"We believe semiconductors are in a period of sustained long-term growth, with factors such as AI, cloud computing and automotive all driving growth that's more diversified vs. the past," wrote Caso. "Cyclical indicators are all pointing to a correction, but that's by now well known. What we think is important is that these indicators (inventory, excess capacity) don't appear worse than the 2018 downturn. Therefore, absent a more significant macro correction (for which we can't call), we would expect the cyclical effects in 2023 to be similar to 2019."
The analysts added that "the most compelling bull argument is the simplest," explaining that historically 2/3 of the pullbacks in semi stocks occur before the first bad news hits the tape, and most times, they reach a bottom just a few months later.
"Multiples are now close to trough levels (even after last week's rally), so we think stock downside is at worst proportional to estimate downside," the analysts wrote.