Many analysts are now bearish on the chip sector , but some semiconductor firms could still do well even as the risks of a slowdown grow, according to JPMorgan. Some chipmakers are set to be driven by solid spending in a key tech sub-sector: the cloud. Companies will drive expenditure in this area — on the back of strong adoption of public cloud services, and new data center construction, the investment bank said in a July 12 note. Cloud spending will accelerate in the second half of this year, jumping 22% from the first half, the bank forecast. “Overall this is in-line with our sector thesis where we continue to be positively biased on the cloud datacenter market for the mid-to-long term and look for semiconductor companies levered to datacenter spending to outperform across compute, networking, and storage/memory,” JPMorgan analysts wrote. That could be one bright spot amid the gloomy forecasts on chip companies of late, as analysts predict a downturn in this once red-hot sector in light of recession fears. Chip stocks took a tumble in early July after Micron warned of waning demand, but have since recovered some losses. Still, the VanEck Semiconductor ETF is down about 35% year-to-date. Read more Chip stocks are in trouble. But analysts are giving some serious upside — naming one with over 70% A recession is a given, one investment advisor says — and reveals his top stocks to beat it ‘Outright cheap’: JPMorgan says there’s a tactical buying opportunity in these global stocks JPMorgan highlights two semiconductor leaders in cloud networking that it believes will benefit from the digital trend. Stock picks American semiconductor firms Broadcom and Marvell are two stocks that JPMorgan says will enjoy strong demand in the near to medium term. It said both stocks will enjoy strong tailwinds even in the event of a recession. “Cloud/hyperscale datacenter capex spending accelerating in 2H22 (22%) versus 1H22 and with [year-on-year] growth sustained into CY23 even taking into account potential recession scenarios – continues to be a strong growth tailwind for [Broadcom] and [Marvell],” said JPMorgan. The bank estimates that cloud data centers form around 25% of Broadcom’s total semiconductor solution sales. The firm is also continuing to deliver new ASIC programs to cloud customers such as Google, Meta and Microsoft, said JPMorgan. ASIC, or application-specific integrated circuit, is an integrated circuit chip customized for specific uses. Its custom data center chip business, which includes the above customers, is poised to grow to around $2 billion this year, said the investment bank. “The near-term demand environment remains strong and demand continues running ahead of supply capability, especially for its networking products,” JPMorgan analysts said. As for Marvell, the investment bank said that cloud data centers make up around 30% of its total revenue. It also has a strong position in the ASIC market — with 17% market share — and is set to continue to dominate this segment, said JPMorgan. The bank also picked out Nvidia as another possible beneficiary of strong cloud data center spending.
