Semiconductor Stock Pullback Is a Buying Opportunity, Citi Says

The recent pullback in semiconductor stocks, driven by macroeconomic pressures like surging oil prices and rising bond yields, represents a buying opportunity for investors, according to analysts at Citi. The bank maintains a constructive view on the sector, citing fundamental strength in key end markets and upward revisions to earnings estimates.

Data Centers Lead Demand

Data centers remain the strongest end market for chips and are a primary driver of Citi's bullish thesis. This segment currently accounts for 34% of total semiconductor demand and is projected to grow to a size that exceeds the entire current semiconductor total addressable market (TAM) by 2030, the bank stated.

While data center demand is robust, other segments show a mixed picture. Citi noted a recovery is underway in the auto and industrial segment, which comprises 21% of the market. Conversely, demand from personal computers, mobile handsets, and consumer electronics—a combined 42% of the market—continues to weaken, which the bank attributes to "memory cost inflation and supply constraints."

Capital Spending Surge Favors Equipment Makers

Citi expressed a preference for semiconductor capital equipment stocks over chipmakers themselves, citing higher estimate revisions fueled by significant increases in capital expenditure (capex) plans across the industry. The bank highlighted several key announcements from major companies:

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• Intel (INTC): Raised its 2026 capex guidance to more than $20 billion from approximately $18 billion, expecting its 2027 spending to be "significantly higher."
• TSMC (TSM): Increased its 2026 capex forecast to $60-$64 billion, up from nearly $56 billion, due to stronger-than-expected AI demand.
• Tesla (TSLA): Reiterated that its 2026 capex will exceed $25 billion and will continue to grow, with investments earmarked for semiconductor manufacturing.

Further underscoring the investment trend, Amkor (AMKR) announced a $1.5 billion multi-year partnership with Nvidia (NVDA) to expand U.S. advanced packaging capacity, supported by a prepayment from Nvidia.

Earnings Estimates Rise

The positive outlook is also supported by early earnings season results. According to Citi's review of companies that have reported, consensus estimates have been revised upward. For 2026 and 2027, revenue forecasts have increased by 4% and 7%, respectively, while earnings-per-share (EPS) estimates have climbed by 7% and 8%.