As the semiconductor rally continues to reshape market leadership, Citigroup maintained three U.S. chip names as its highest-conviction picks. Analyst Atif Malik said a recent pullback across the sector should be considered a normal correction rather than a structural reversal.
Malik left Broadcom Inc (NASDAQ:AVGO), Texas Instruments Incorporated (NASDAQ:TXN) and Applied Materials Inc (NASDAQ:AMAT) unchanged as the bank's top buy-rated selections within the U.S. semiconductor landscape. These recommendations arrive while the Philadelphia Semiconductor Index has posted a 61% gain quarter-to-date, significantly outpacing the S&P 500's 13% rise.
Broadcom is singled out for its central exposure to data center demand, which Citi notes constitutes 34% of overall semiconductor demand. That end market has been buoyed by ongoing investment in artificial intelligence infrastructure and the rollout of server CPUs designed for agentic workloads, factors Malik identified as supporting continued strength for Broadcom's exposure.
In analog semiconductors, Texas Instruments is cast as a defensive option amid an uncertain global macroeconomic backdrop. Malik pointed to TI's order patterns as tracking "above-seasonal" in some segments and "seasonal" in others, suggesting relative resilience even as industrial and automotive end markets face broader economic pressures.
On the manufacturing side, Applied Materials is Citi's preferred pick among semiconductor capital equipment suppliers. Consensus calendar year 2027 earnings estimates for capital equipment stocks have risen on average by 11%, a shift Citi attributes in part to a 13% upward revision specifically for Applied Materials.
Citi's selective positioning across these names reflects expectations for evolving industry dynamics and the potential for supply constraints over the next two years. Market commentary referencing product specifications and supply signals - including reports of Nvidia de-specing DRAM in its upcoming Vera Rubin platform and supply-related remarks from Broadcom and Ciena - has contributed to investor focus on supply conditions in 2027.
Summary
Citigroup reiterated Broadcom, Texas Instruments and Applied Materials as its top U.S. semiconductor buy-rated picks amid a sector pullback judged to be healthy. The calls emphasize data center exposure, analog order resilience, and improving earnings revisions for capital equipment into 2027.
Key points
- The Philadelphia Semiconductor Index has climbed 61% quarter-to-date versus the S&P 500's 13% gain, underscoring the sector's recent outperformance.
- Data center demand represents 34% of total semiconductor demand, a major strength cited for Broadcom's positioning.
- Capital equipment consensus earnings for calendar year 2027 rose 11% on average, including a 13% upward revision for Applied Materials.
Risks and uncertainties
- Shifts in supply dynamics into 2027 could alter the relative competitiveness and revenue outlooks for equipment and component suppliers - impacting the capital equipment and semiconductor supply chains.
- Slower activity in industrial and automotive end markets could affect analog demand, a sector where Texas Instruments has material exposure.
- Changes in product specifications or supplier choices - such as reported de-specing of DRAM in upcoming platforms - introduce uncertainty around component demand and manufacturer sourcing decisions.