Amid a recent downturn in semiconductor stocks, Jefferies has identified three “top picks” in the sector, which it says present investors with a buying opportunity. The chip industry has experienced a substantial sell-off since mid-July, primarily driven by sector rotation and compounded by fears surrounding China-related restrictions and concerns about artificial intelligence demand, according to the investment bank. For instance, the iShares Semiconductor ETF (SOXX) fell into a bear market last week, down 25% from its July 10 peak at $265.49, although it has since pared back some of its losses. The investment bank identified Dutch semiconductor toolmaker ASML and European suppliers to the chip making industry ASM and VAT as its top picks. All three large-cap stocks are also traded in the U.S. “We see the bullish outlook for the sector and our top picks — ASML, ASM, and VAT — as completely unchanged in the last two weeks; the sell-down therefore represents a buying opportunity, in our view,” Jefferies analysts led by Janardan Menon, said in a note to clients on June 26. SOXX has fallen a further 7% since the note was released. The analysts emphasized that the current market conditions should not be viewed as a cause for alarm but rather as a chance for strategic investment as they see semiconductor demand soon gaining momentum. “We expect semiconductor demand to accelerate over the next 6-12 months, led by increased demand for AI servers, iPhones, Android phones, general-purpose servers, AI PCs, consumer devices, and [Internet of Things], with a subsequent recovery in industrial and automotive,” the analysts said. This projected surge in demand is expected to positively impact a wide range of companies within the semiconductor industry. Jefferies expects “most semiconductor companies, including foundries, chip vendors, and front-end equipment suppliers, to beat and raise in coming quarters.” The current downturn is not unprecedented in the cyclical semiconductor industry. The Jefferies analysts pointed out that similar pullbacks have occurred in the past, such as a 12% drop in the SOX Semiconductor Index in April of this year, followed by a 37% climb over the subsequent three months. SOXX YTD line
