Citi expects short-term rally in chip stocks to continue, citing negative sentiment
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Investment firm Citi said on Monday that the short-term rally in semiconductor stocks is likely to continue, citing the "extent of negative sentiment" even with some companies giving positive or in-line updates.
Analyst Christopher Danely noted updates from companies like NXP Semiconductors (NASDAQ:NXPI), Texas Instruments (NASDAQ:TXN) and Avnet (NASDAQ:AVT) were seen as "largely positive," but there were some signs of "fraying around the edges," as NXP mentioned some general weakness in Europe and fewer shortages. Texas Instruments (TXN) made mentions of impact from China's shut-downs, while Avnet (AVT) mentioned declines in lead times and a moderating backlog. 
Danley added that ON Semiconductor (ON) was seen as the most bullish, given its growth is driven by silicon carbide and its 66% exposure to the automotive and industrial markets.
"As we stated in our preview, we do not expect a lot of bad news in semis until the second half of September," Danely wrote in a note to clients. "As a result, we believe the short-term rally could last a couple more weeks."
Even with the short-term rally expected to last for a little while longer, Danely added that push-outs and order cancellations are likely to come, perhaps as soon as later this month. 
"As a result, we expect the group to hit new lows either before or during earnings in October when the news comes out," Danely added.
Analog Devices (ADI) is reiterated as the firm's top semiconductor pick, followed by ON Semiconductor (ON), Advanced Micro Devices (AMD), Micron Technology (MU) and GlobalFoundries (GFS), citing increasing margins and earnings per share. 
An investment firm listed Advanced Micro Devices (AMD) and Texas Instruments (TXN) as part of a group of companies likely to benefit from faster adoption of trends such as artificial intelligence, big data and cybersecurity.