Analysts at JPMorgan predict that semiconductor stocks will continue their upward trajectory, driven by robust market fundamentals and growing demand, especially from the AI sector.
In their latest research note, the bank’s analysts highlight that the semiconductor industry, including the semi, semicap and EDA segments, has shown remarkable resilience and is expected to maintain its multi-year equity outperformance.
JPMorgan explains that the custom chip (ASIC) market is experiencing increasing demand due to advances in AI, with an expected market size of $20 to $30 billion and an expected growth rate of 20%. Major players such as AVGO (Broadcom (NASDAQ:)) and MRVL (Marvell (NASDAQ:) Technology) are expected to dominate this sector.
Furthermore, AI data centers such as ARM and ALAB would gain popularity.
The investment bank believes several factors are contributing to the strong performance of semiconductor stocks. The sector’s fundamental role in technological innovation, the emergence of new enablers such as cloud data centers, electric vehicles (EV), the Internet of Things (IoT) and AI/deep learning, and a shift towards lower cyclicality due to diversification of end markets and disciplined supply growth all play a crucial role.
According to the company, this lower cyclicality has led to a focus on profitability and expansion of free cash flow, with strong capital returns for shareholders.
JPMorgan forecasts semiconductor industry revenues to grow 6 to 8% in 2024, after an 8% decline in 2023. They remain bullish on semiconductor stocks and expect positive supply and demand trends and earnings revisions to drive the market higher in 2024 and 2025 will push.
Their top picks are AVGO, MRVL, MU, ADI, MCHP, KLAC, and SNPS, with additional recommendations for NVDA, AMAT, LRCX, ARM, and SLAB.
