The semiconductor industry could be in for a rough year in 2023 amid declining sales of memory chips and PC processors, along with worries that other segments could turn south as well. However, some semiconductor stocks could buck the downturn.

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Wall Street analysts lately have been making predictions for the year ahead in the chip sector. Many have revealed their top picks in semiconductor stocks for 2023.

One top pick among analysts is Analog Devices (ADI), a member of the IBD Tech Leaders list. That list includes 17 semiconductor stocks such as Allegro MicroSystems (ALGM) and Lattice Semiconductor (LSCC). The list also features semiconductor equipment suppliers such as Aehr Test Systems (AEHR), Axcelis Technologies (ACLS) and KLA (KLAC).

Still, BofA Securities analyst Vivek Arya said he expects a “bumpy start” for semiconductor stocks in 2023, with a recovery anticipated in the second half of the year.

The current chip cycle downturn is likely to last about eight quarters, slightly longer than historical norms, he said in a note to clients.

Recovery Might Not Happen Until 2024

However, BMO Capital Markets analyst Ambrish Srivastava is pessimistic for a recovery in 2023.

“That 2023 is going to be a really poor year for semiconductor fundamentals is a foregone conclusion,” he said in a recent report. “In good time, we would expect the focus to shift to the recovery in 2024.”

World Semiconductor Trade Statistics predicts chip sales will decline 4.1% in 2023 after rising 4.4% in 2022 and 26.2% in 2021.

Semiconductor sales are seen falling to $557 billion worldwide in 2023 from $580 billion in 2022. Memory chips will lead the decline, but logic and microprocessors are seen falling as well, the trade organization said.

Forecast For ‘Rolling’ Downturn

Deutsche Bank analyst Ross Seymore said in a note to clients that the semiconductor market downturn is likely to be “rolling” in nature. Some end markets, such as data centers, automotive and industrial, will take longer to correct than others, he said. Personal computers, smartphones and other consumer devices are already in a correction, Seymore added.

Robert Maire, an analyst with consulting firm Semiconductor Advisors, said investors hoping for a short downturn are likely to be disappointed.

“The industry hasn’t gone through a ‘real,’ ‘cleansing’ down cycle in quite some time, so many investors and participants think this is just a one- or two-quarter blip, then back to the races,” he said in a report. “We don’t think this is a short blip as evidenced by layoffs and production cuts and cancellations that didn’t happen in prior short blips in an otherwise strong growth pattern.”

Morgan Stanley analyst Joseph Moore said the semiconductor industry needs to work through a buildup of inventory that propelled sales growth in 2022. The inventory correction could last through 2023, he said in a note to clients. For that reason, the recent rally in semiconductor stocks may have been premature, he says.

Top Picks In Semiconductor Stocks

Investment bank UBS selected Advanced Micro Devices (AMD) as its “highest conviction call” among semiconductor stocks. It sees AMD rebounding along with PC sales in 2023. AMD also is poised to continue to gain market share in data centers, the firm said.

Morgan Stanley also called AMD a top pick for the year ahead.

Needham highlighted graphics-chip maker Nvidia (NVDA) as its top pick for 2023 in semiconductor stocks.

Cowen chose Nvidia and Analog Devices as its “best ideas” for the New Year.

Brokerage firm William Blair named timing-chip maker SiTime (SITM) as a “top stock recommendation” for 2023.

Meanwhile, Evercore ISI cited Analog Devices, Broadcom (AVGO), Marvell Technology (MRVL), Nvidia and Wolfspeed (WOLF) as its top picks for 2023.

Analog Devices ticked up 9 cents to close at 163.84 on the stock market today.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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