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Investing.com -- KeyBanc Capital Markets sees pockets of opportunity in the semiconductor sector despite growing macroeconomic risks and fresh trade headwinds.
In its fourth-quarter 2024 semiconductor cycle analysis, the firm warned of “30-40% further downside risk to SOXX valuations” in a potential recession but maintained a positive outlook on select chipmakers.
“We believe the last two recessions… represent a more ‘extreme’ scenario where earnings declined peak-to-trough in the range of 71% to 81%,” KeyBanc said, referring to the 2001–02 tech bubble and the 2008–09 financial crisis.
“A more realistic downside scenario… would suggest 30-40% further downside risk to current valuations if we were to enter a recession,” added the firm.
Inventory data showed signs of softness, said the firm. They added that total semiconductor supply chain inventories rose to 81 days in the fourth quarter, up two days sequentially and above the five-year average of 72 days.
“The increase was attributed to an increase in AI inventories at NVDA and ODMs to support the Blackwell launch,” the note said, reflecting continued muted demand.
KeyBanc cut its 2025 IC ex-memory revenue forecast from 9% to 5%, citing tariffs and weak demand in PCs, smartphones, and industrials.
Despite that, analysts still expect “continued SOXX appreciation in 2025 with expectations for a muted 2H recovery… aided by outsized demand in gen AI.”
In terms of positioning, KeyBanc favors stocks tied to generative AI or those that have already worked through inventory challenges.
“We recommend positioning in stocks indexed to gen AI and/or are further through the destocking process and thus favor NVDA and AVGO. Within analog, we favor ADI.”
The firm believes generative AI and memory pricing will continue to support select names, even as broader chip sector dynamics remain challenging.