Investing.com – Citi upgraded several semiconductor equipment stocks, including Nova. Veeco Tools Inc (NASDAQ:), ISS Instruments Inc (NASDAQ:), Advanced Energy Industries Inc (NASDAQ:) and Form factor Inc (NASDAQ:) has an attractive risk/reward dynamic despite an expected 5% decline in wafer fabrication equipment costs in 2025.
The sector faced a sharp correction of over 30% in the second half of 2024, driven by lower consumer demand for memory and lower spending in China. However, Citi highlighted tailwinds from ongoing AI-related investments, as well as a potential recovery in memory prices and forecasts by the first half of 2025, as key catalysts.
The upgrade is consistent with Citi’s “phase 1 cyclical stock selection framework” and the recommendation of its US semiconductor and semiconductor equipment strategy team. The sector is currently trading at historically attractive prices with a discount of 39% to the Philadelphia Semiconductor Index and 18% to the .
In terms of large-cap stocks, Citi favors KLA over rivals Applied Materials (NASDAQ:) and Lam Research (NASDAQ:) due to greater exposure to advanced foundry and logic sales and reduced risks to China spending .
In the small- and mid-cap space, Citi singled out Nova for its broad portfolio of metrology solutions, Veeco for its growing share in the laser and annealing markets, and Teradyne (NASDAQ:) for its capabilities in specialty computing.
Citi warned that risks remained, including geopolitical tensions, macroeconomic weakness and over-reliance on demand for artificial intelligence servers, but believed the sector’s correction was largely downside.