Chip stocks may continue their upward trajectory next year, according to KeyBanc Capital Markets, which points to strong earnings momentum and steady demand across the semiconductor industry.
In its latest quarterly semiconductor cycle review, KeyBanc forecasted “30-40% further upside to SOX valuations given historical trough-to-peak analysis mainly driven by further upward revisions in EPS as the cycle recovers.”
The firm emphasized that “semiconductor recovery shows further upside as earnings expansion remains in early stages,” adding that although roughly half of a typical earnings rebound has already occurred, “meaningful revisions are still expected.”
KeyBanc also raised its 2025 revenue growth forecast for ICs excluding memory to 19% from 5%, citing “improved pricing given increased AI chip mix and inflationary pressures.”
“For 2025 IC semiconductor growth (Ex-Memory), we now expect unit, ASP, and revenue to be +4%, +15%, and +19%, respectively, compared to the five-year averages of +5%, +6%, and +11%,” the analysts said.
The report highlighted healthier inventory conditions as supply chains adjust. Aggregate inventories fell by two days to 81, which KeyBanc attributed to “more disciplined channel behavior, as suppliers appear to be allowing inventory to digest at end customers rather than pushing excess product into the channel.”
Looking ahead, shipments are projected to surpass trendline levels in the second half of 2025, fueled by strong AI demand, a rebound in analog semiconductors, and an eventual recovery in automotive chips.
From an investment standpoint, KeyBanc recommends “positioning in stocks indexed to gen AI and/or are further through the destocking process,” highlighting Nvidia (NASDAQ:NVDA), Broadcom (NASDAQ:AVCO), and Analog Devices (NASDAQ:ADI) as preferred picks.
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