Semiconductor stocks are getting hit—hard—on Monday, but the rally doesn’t appear to be over yet, a Jefferies analyst says.
“Semiconductor share prices have had a high correlation with the semiconductor cycle over the past 30 years,” Jefferies analyst William Beavington writes.
The PHLX Semiconductor Index, or SOX, has dropped 2% on Monday, as investors flee the group ahead of Nvidia’s earnings on Wednesday. Still, the sector has gained 25% this year and 50% over the last 12 months. Jefferies’ William Beavington says this upturn will peak around mid-2025, with growth rates for global chip sales around 30% to 35% year over year. Rallies tend to last about two years, he adds, and the last cycle began in April 2023.
“Semiconductor share prices have had a high correlation with the semiconductor cycle over the past 30 years,” he writes.
Some may argue the cycle will peak earlier than Jefferies’ forecasts, Beavington acknowledges. A surge in demand across the supply chain from artificial intelligence or Nvidia could lead to over-ordering, inventory corrections, or other scenarios. The analyst has a couple of points in response to that.
First, the Nvidia and cloud AI segment only comprises about 10% to 15% of global semiconductor revenue, he says. Of the remainder, 15% to 20% comes from auto and industrial, and 70% from smartphones, PCs, servers, and laptops. This means the Nvidia/AI impact “is less pronounced than some might think,” he notes.
Second, Nvidia and cloud AI will continue to be strong for the next four quarters, thanks to ongoing demand for coming products, he says. The analyst also sees strength in the smartphone category amid demand for AI devices and the iPhone 16 launch.
“These areas are more balanced in terms of demand and supply than the NVIDIA segment, and therefore are likely to reach the inventory tipping point later,” he writes.
Even if demand does start to trail off in certain sectors, year-over-year growth in global sales can still rise, the analyst notes.
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