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Propelled by the artificial intelligence craze, 2023 has been a banner year for chipmaker stocks. So far this year, the PHLX Semiconductor Sector index has added nearly 64%, versus the S & P 500 ‘s 24% rise. These gains have largely been driven by Nvidia , up an eye-watering 236% this year. Shares of Advanced Micro Devices and Broadcom , each up more than 100%, have also skyrocketed the index higher. What’s more, there still might be more gains to come for the semiconductor space, says UBS. In a Friday note, analyst Timothy Arcuri wrote that he was remaining overweight on the sector as it enters the “sweet spot” — the point where inventory has peaked and is now starting to convert to revenue. However, Arcuri cautioned that the pace of revenue recovery is likely to remain hampered due to still-elevated levels of downstream customer inventory. That being said, “as rates come down, downstream demand pull should strengthen and revenue growth should materially outpace inventory growth for 2024 — a positive backdrop for stocks the past four cycles,” he wrote. The analyst listed Micron Technology and Advanced Micro Devices as his top two stock ideas for the new year. “This could be a super-cycle in memory with new AI demand vectors amid structural capacity constraints,” he wrote, adding that Micron would be a good name to play the theme. Shares of Micron have rallied 73% in 2023. On Wednesday, the semiconductor stock gained 8.6% on the back of a fiscal first-quarter earnings beat . Advanced Micro Devices, on the other hand, is a good name to play the theme of customer monetization for data centers, Arcuri wrote. The stock is up 115% this year, spurred by catalysts such as the launch of its new AI chips . AMD YTD mountain AMD YTD chart Earlier this month, Bank of America upgraded both Micron and Advanced Micro Devices stock to buy from neutral. The firm wrote that Micron should benefit from rising memory prices, while Advanced Micro Devices has potential for “accelerator share capture.” In the same note, Arcuri also highlighted Teradyne as his favorite “outside the box” stock idea for 2024. Shares of Teradyne, a manufacturing automation firm, have risen nearly 23% so far this year. Arcuri believes the stock could rally even more in 2024 as higher-end smartphones see improvements in memory capacity and machine learning-related computing. “We see TER as an ‘under the radar’ play on this trend, especially as utilization inflects off the bottom,” he wrote. He added that the stock could also benefit as the cyclical recovery broadens and investors move back toward analog and other capacity plays.
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