Semiconductor stocks were upgraded to "bullish" from "cautious" at JP Morgan on expectations that earnings estimates and gross margins may increase in the second half of this year.
"Utilization rates should bottom in the first quarter of 2007 due to the inventory correction and result in a bottoming of gross margins and earnings estimates," wrote JP Morgan analysts including Christopher Danely, who prefer Texas Instruments Inc over the two biggest computer chipmakers, Intel Corp and Advanced Micro Devices (AMD) Inc.
Texas Instruments, along with Microchip Technology Inc, Marvell Technology Group Ltd, Analog Devices Inc and Nvidia Corp, should "outperform" as their margins will either bottom out in the first quarter or continue to expand, the JP Morgan analysts wrote.
They added that investors should remain cautious on Intel and AMD because another inventory correction may occur in the personal computer component market due to "overly optimistic" expectations of PC demand during the first half.
Deutsche Bank also upgraded the sector yesterday, increasing its rating to "overweight" from "neutral."
Chip stocks initially rallied on Friday before erasing their gains after Micron Technology Inc said prices of memory chips used in consumer electronics may slide 40 percent this quarter.
Texas Instruments fell US$0.16 to close at US$30.92 in New York Stock Exchange composite trading. Microchip slipped US$0.24 to US$35.41, Marvell lost US$0.24 to US$18.31 and Analog fell US$0.20 to US$33.10. Nvidia declined US$1.73 to US$32.65. Intel slid US$0.33 to US$21.03 and AMD slipped US$0.23 to US$14.90.
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