Goldman Sachs expects a generally constructive environment across the semiconductor industry as companies report first-quarter results, but its analysts emphasize a selective approach to stock selection.
Across several sub-sectors - including compute, memory, storage and semiconductor capital equipment - the bank sees the greatest scope for estimates to beat consensus. Goldman also notes that recent pullbacks in a number of top-performing chip stocks have created a more attractive trading backdrop for some names.
On the buy list, Goldman singles out Teradyne as its highest-conviction pick. In a client note, the analysts led by James Schneider wrote that they see upside to Street estimates for the quarter and for guidance, driven by stronger-than-expected tester demand across computing, optical and memory markets. The analysts also flagged the potential for Teradyne to disclose gains in GPU testing market share.
Applied Materials is another name the bank expects could outperform. Goldman points to capacity pull-ins across both DRAM and foundry customers as key demand drivers. With roughly 60% of Applied Materials' business tied to etch and deposition, analysts believe the stock has room to re-rate toward peer valuation levels.
Advanced Micro Devices completes Goldmans trio of recommended buys. The bank anticipates that strength in server central processing units attributable to AI infrastructure spending will support a modest beat, while noting that weakness in the personal computer market will partly offset positives.
On the avoid list, Goldman cautions that KLA Corp. may lag peers despite what the bank described as a "very constructive Investor Day." The firms reasoning is that current equipment spending is biased toward DRAM, a segment where inspection and metrology intensity is typically lower, reducing the relative benefit to KLA.
Onsemi faces idiosyncratic challenges in Goldmans view, largely because of its significant exposure to the automotive end market. That automotive weighting is compounded by pressures the bank sees in Onsemis CMOS image sensor and silicon carbide businesses.
Arm Holdings carries a Sell rating from the team and is forecast to post an in-line quarter. Goldman attributes that outlook to smartphone-related headwinds that have produced a near-term pullback in demand.
Beyond individual names, Goldman expects hyperscaler capital expenditure trends to tilt upward, a development the bank believes will support both server CPU demand and custom ASIC programs. In memory and storage, the firm prefers the hard disk drive and NAND ecosystems on the basis of limited near-term supply additions.
Within analog semiconductors, Goldman identifies companies with the most exposure to industrial, aerospace and defense, and datacenter end markets as being best positioned among peers.
Separately, the note includes a reference to an AI-driven stock selection tool that evaluates Applied Materials among many companies each month using a wide set of financial metrics, positioning it within a broader assessment of fundamentals, momentum and valuation.
Bottom line: Goldman Sachs sees upside across much of the chip supply chain heading into Q1 reporting, but its recommendations are selective - favoring Teradyne, Applied Materials and AMD while warning on KLA, Onsemi and Arm given differences in demand exposure and intensity across sub-sectors.