Stacy Rasgon from Bernstein Research expressed cautious optimism about the semiconductor sector, highlighting Broadcom as having the second-best AI narrative after NVIDIA, while noting concerns about high stock valuations and ongoing struggles in certain market segments. He remains cautious about AMD’s growth potential in AI and anticipates stability in Applied Materials’ upcoming earnings, urging investors to be selective and vigilant regarding market conditions.
In a recent discussion, Stacy Rasgon from Bernstein Research expressed his concerns regarding the recent surge in semiconductor stock prices. While he typically remains optimistic about the chip sector, he noted that the current valuations are at a decade-high, with stocks trading at 31 times forward earnings. Rasgon highlighted that despite the recent recovery from a prior downturn, significant parts of the market, particularly in the analog space, industrials, and automotive sectors, are still struggling. This raises questions about whether the earnings have truly bottomed out or if the anticipated recovery might not be as robust as expected.
Rasgon specifically mentioned Broadcom as a standout in the semiconductor space, stating that it has the second-best AI narrative after NVIDIA. He praised Broadcom for its strong performance in networking and compute services for hyperscalers, which has helped offset challenges in its core business. He believes that Broadcom’s conservative AI guidance and its strategic acquisitions in software are positioning the company well for future growth. With high margins and free cash flow, Rasgon sees Broadcom as an attractive investment relative to its peers.
When discussing AMD, Rasgon expressed a more cautious stance. He acknowledged that AMD’s recent earnings report was decent and that the company has raised its AI guidance. However, he remains concerned about the overall health of the markets AMD operates in, particularly in light of Intel’s struggles with channel inventories. While he sees potential in AMD, he believes that its AI business, although growing, is still relatively small compared to NVIDIA and may not meet the high expectations set by investors.
As for Applied Materials (AMAT), Rasgon indicated that the upcoming earnings report should be relatively stable, as most of the semiconductor sector has already reported positive results. He noted that investors will be particularly focused on the sustainability of growth in China and the company’s exposure to advanced packaging. Additionally, he mentioned that Intel’s recent capital expenditure cuts could impact the broader market, but he had to adjust his own expectations for Intel’s capex upwards, indicating that the company may be targeting higher spending than previously anticipated.
Overall, Rasgon’s insights reflect a cautious optimism in the semiconductor sector, emphasizing the need for selectivity in investments. While he sees potential in companies like Broadcom, he urges investors to remain vigilant about market conditions and the sustainability of earnings growth, particularly in light of ongoing challenges in certain segments of the industry.