The demand environment for semiconductor stocks is mixed, with relative strength in data centers and artificial intelligence, offset by sluggishness in traditional automotive and consumer sectors, BofA Securities analysts said in a Monday note.
Analysts said they prefer companies with strong free cash flow generation. Their top pick amongst large-cap companies in the sector is Analog Devices (ADI), while the top pick in small-to-medium caps is MACOM Technology Solutions (MTSI).
BofA upgraded its ON Semiconductor rating to buy from neutral and increased its price target to $85 from $70. Analysts highlighted the stock's pipeline, "solid" free cash flow, buyback commitment, model leverage, and low balance sheet leverage.
On NXP Semiconductors (NXPI), analysts downgraded the rating to neutral from buy and lowered its price target to $230 from $245, noting that the stock is "less compelling" compared to its peers in a tougher environment for analog.
BofA retained its buy rating on Analog Devices and raised its price target to $425 from $400 to account for growth in core secular growth areas, such as artificial intelligence.
Analysts also retained a buy rating on MACOM Technology Solutions and raised its price target to $305 from $260 due to its ongoing momentum in the optics industry.
Price: $70.19, Change: $+1.54, Percent Change: +2.24%