Citi Expects Semiconductor Rebound After 18% Summer Selloff

Semiconductor stocks are poised for a rebound following a significant summer downturn, according to a new analysis from Citi. The bank's analysts told clients in a note Tuesday that despite an 18% drop in a key industry index, strong underlying demand and upcoming industry events should provide a tailwind for the sector.

Summer Slump and Expected Catalysts

The Philadelphia Semiconductor Index fell 18% over the summer as the sector contended with high investor expectations and a slight deceleration in earnings momentum, Citi noted. However, the bank anticipates a recovery driven by a heavy conference schedule, including its own Global TMT conference.

Citi wrote that it expects positive commentary from industry players, specifically highlighting companies like AMD, Marvell (MRVL), Lumentum (LITE), and Astera Labs (ALAB), as well as semiconductor capital equipment firms.

Demand Picture Remains Mixed

Underpinning Citi's positive outlook is the continued strength in demand from key end markets. The bank detailed the current demand landscape:

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• Data Center: Remains strong, accounting for 34% of the industry's total addressable market.
• Autos and Industrials: This segment, representing 21% of the market, continues to recover.
• PCs and Handsets: Demand remains weak for this 42% slice of the market, hampered by memory cost inflation and ongoing supply constraints.

Citi Boosts CPU and Equipment Forecasts

Analysts at the bank turned more bullish on central processing units (CPUs), significantly lifting their market forecast to $237 billion by 2030. This represents a 52% compound annual growth rate from a 2025 forecast of $29 billion and is above projections from AMD, Arm, and Nvidia. Citi identified AMD as the primary beneficiary of this "CPU renaissance," with Intel as a secondary winner.

Furthermore, Citi raised its outlook for wafer fabrication equipment (WFE) spending, citing a stronger capital expenditure model from hyperscale cloud providers. The bank now sees a 2028 bull case approaching $300 billion, with a base-case spending forecast of $257 billion, up from a previous estimate of $250 billion.