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Macro

UBS Bullish on Semiconductors, Sees 70% Upside in Select Stocks

UBS optimistic on semiconductor sector, forecasts 28% revenue increase to $674 billion by 2024, driven by AI and memory chip demand.

By Bill Bullington

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4/9, 08:44 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
KLA Corporation
Marvell Technology, Inc.
ON Semiconductor Corporation
STMicroelectronics N.V.
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Key Takeaway

  • UBS forecasts a 28% year-on-year rise in semiconductor revenues to $674 billion by end-2024, with EPS growth rebounding sharply by 72%.
  • Prefers memory chips, leading edge foundry, and analog/microcontroller semiconductors; highlights Renesas Electronics with a 69.7% upside.
  • Lists Onsemi and KLA among least preferred names, with potential downsides of -3% and -13.3%, respectively.

AI Surge Boosts Semiconductor Stocks

The semiconductor sector has experienced a significant uplift, primarily driven by the burgeoning field of artificial intelligence (AI). The PHLX Semiconductor Sector index, a key benchmark for the industry, has seen a remarkable surge of 65% in 2023, outperforming the broader S&P 500 index. This momentum has continued into the current year, with a nearly 20% increase already recorded. UBS, in a March 5 note, highlighted the growing divergence within the sector, stating, "The performance divergence between semiconductor stocks has been strong [year-to-date] and warrants attention." This divergence is particularly pronounced between AI-related semiconductor stocks and semiconductor capital equipment stocks, which have significantly outperformed, and analog and microcontroller semiconductor companies, which have materially trailed.

UBS Forecasts Semiconductor Recovery

Despite the disparities within the sector, UBS is optimistic about the semiconductor industry's prospects, forecasting a "solid recovery" in semiconductor revenues. The bank predicts a 28% year-on-year increase in semiconductor revenues, reaching $674 billion by the end of 2024. Additionally, semiconductor earnings per share are expected to see a "sharp rebound," with a 72% year-on-year increase by the end of 2024. A key driver of this growth is anticipated to be a rise in demand for memory chips, alongside contributions from Nvidia, a leading player in the AI semiconductor space.

UBS's Semiconductor Picks

In light of the sector's dynamics, UBS has outlined its preferences within the semiconductor industry. The bank favors sub-sectors such as memory chips, leading-edge foundry, and analog and microcontroller semiconductors. UBS's list of most preferred, buy-rated semiconductor names includes STMicroelectronics, Infineon, Marvell Technology, Renesas Electronics, Samsung Electronics, and SK Hynix, with potential upsides ranging from 7.3% to 69.7%. Conversely, the list of least preferred names features Onsemi, KLA, Powertech, and GigaDevice, with potential downsides ranging from -3% to -31.4%.

Street Views

  • UBS Analysts (Bullish on specific semiconductor sub-sectors):

    "The performance divergence between semiconductor stocks has been strong [year-to-date] and warrants attention... we’re forecasting a solid recovery in semiconductor revenues, predicting they will rise 28% year on year to $674 billion overall by the end of 2024."