Chip stocks have enjoyed a recent run-up amid the frenzy over artificial intelligence, but Citi Research analyst Christopher Danely warned that semiconductor names “have gotten ahead of themselves” and seem “due for a pullback.”
Despite market optimism about the sector’s ability to capitalize on AI-related demand, “it appears only Nvidia NVDA is directly benefiting from generative AI as IT budgets, especially from cloud service providers, remain flat to down,” Danely wrote. “We believe generative AI spending could be cannibalizing CPU [central processing unit] spending as budgets are not going up in a weaker macroenvironment.
He named a new “top pick” in his latest note to clients, giving the nod to Micron Technology Inc. MU , a stock that’s missed most of the recent sector surge, rising only 1.5% over the past two weeks, as the PHLX Semiconductor Index has advanced 9.2%. “We believe the China ban on Micron should put the company in position to get more money from the CHIPS Act, given that most companies appear to be opting for the minimum $150.0 million given costly contingencies,” Danely wrote.