Citi gets positive on NXP, ON, as firm says semiconductor rally could last into August
Jae Young Ju

The rally in semiconductor stocks over the past several trading sessions could last into August, investment firm Citi said on Thursday, citing the fact that investors are "almost universally bearish" on the group. 
Several analysts, led by Christopher Danely, met with investors across the country and noted that they are largely bearish on the group, as is Citi, but the near-term downside in the group is understood and a "large-scale collapse is not imminent."
"Although the vast majority of investors remain bearish on semis, roughly 20% believe the rally could extend in to August given downside for Texas Instruments (TXN) and Intel (NASDAQ:INTC) is well understood and most semiconductor stocks should report good earnings and guidance," the analysts wrote.
In addition, Citi said there is the possibility that both NXP Semiconductor (NASDAQ:NXPI) and ON Semiconductor (NASDAQ:ON) reported "good earnings" which could result in a "short-term bounce" for the sector. 
"We noticed a fair amount of bearishness on ON from investors given the inventory build in autos and margin headwinds from the fab acquisition although we donât expect either to slow estimates in the near term," the analysts added.
Investors were also underweight Nvidia (NASDAQ:NVDA), Citi noted, due in part to high relative valuation and concerns over the data center.
The analysts were negative on Intel (INTC), noting it expects the semiconductor giant to miss consensus estimates during earnings and the fact that investors are "not overly bearish" going into the report, citing the potential for government assistance.
On Tuesday, the Senate voted 64-34 to advance legislation that some have called Chips-plus, which would give $54B in subsidies to encourage manufacturers to build foundries in the U.S., as well as a new, four-year 25% tax credit.
In a separate note, Citi analyst Atif Malik noted that the bill, which was praised by House Speaker Nancy Pelosi, could pass as soon as next week. Malik added that the firm's base case for wafer fab equipment in 2023 is $80B, but it could go as high as $84B if the bill is "funded on time and Tier 1 foundries maintain flat capex."
On Wednesday, investment firm Deutsche Bank cut estimates on Intel (INTC), noting it expects a "weak" report and guidance, as data points around the PC and the broader global economy continue to get worse.