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Investing.com -- Chip stocks could have more room to run next year, according to KeyBanc Capital Markets, which sees strong earnings momentum and resilient demand across the semiconductor sector.
In its latest quarterly semiconductor cycle analysis, KeyBanc projected “30-40% further upside to SOX valuations given historical trough-to-peak analysis mainly driven by further upward revisions in EPS as the cycle recovers.”
The firm highlighted that “semiconductor recovery shows further upside as earnings expansion remains in early stages,” noting that while about half of the typical earnings recovery has already materialised, meaningful revisions are still expected.
KeyBanc raised its 2025 IC ex-memory revenue growth forecast to 19% from 5%, citing “improved pricing given increased AI chip mix and inflationary pressures.”
The analysts said: “For 2025 IC semiconductor growth (Ex-Memory), we now expect unit, ASP, and revenue to be +4%, +15%, and +19%, respectively, compared to the five-year averages of +5%, +6%, and +11%.”
The report also pointed to healthier inventory conditions as supply chains adjust.
Aggregate inventories decreased by two days to 81, which KeyBanc attributed to “more disciplined channel behavior, as suppliers appear to be allowing inventory to digest at end customers rather than pushing excess product into the channel.”
Looking ahead, shipments are expected to rise above trendline in the second half of 2025, driven by robust AI demand, a rebound in analog, and eventual recovery in auto semiconductors.
From a stock perspective, KeyBanc said it favours “positioning in stocks indexed to gen AI and/or are further through the destocking process,” naming Nvidia, Broadcom and Analog Devices as its favorite ideas.