What happened
Shares of Taiwan Semiconductor Manufacturing (TSM 2.71%) were rising on Monday, up 4.3% as of 11:13 a.m. ET.
The big move came ahead of big tech's earnings this week, although Taiwan Semi had already reported its fourth-quarter numbers last week. Yet on Monday, two different Wall Street analysts had positive things to say about the semiconductor sector broadly. As TSMC is the biggest chip foundry in the world, accounting for nearly 60% of all produced semiconductors, it rose on the heels of the bullish sector calls.
So what
On Monday morning, analysts at both Barclays and Goldman Sachs released bullish notes on semiconductors.
Barclays analyst Blayne Curtis upgraded a bunch of names across the sector today in anticipation of a strong second-half recovery. For those who think the sector hasn't gotten quite as cheap as it has in prior downturns, Curtis urged investors not to wait, writing: "It would have been nice if the group got as cheap as we have seen in other downturns, but we underestimated the amount of money that wanted to move into semis, and we don't see the group testing October lows."
Curtis notes that while cloud investment may be soft in the near term, there could be an acceleration in investment in the back half of the year due to competition in generative artificial intelligence. On that note, Microsoft (MSFT -2.45%) announced this morning that it would invest billions more in ChatGPT parent OpenAI over the next three years, putting serious dollars behind the AI engine's capabilities.
Meanwhile, Goldman Sachs' David Kostin wrote a positive piece on China, which reopened suddenly from its "zero-COVID" policy in December and is accelerating faster than was previously thought. The large basket of stocks Kostin believes will benefit contains many semiconductor and tech names, as many chip names either sell into China, or go into phones and PCs that Chinese consumers buy in large numbers.
Now what
The semiconductor industry is cyclical, but it's growth cyclical, as the outlook for semiconductors remains bright over the long term. With many chip names having sold off between 30% and 50% last year, it appears investors are now looking through the current weak period to a recovery.
However, the semiconductor cycle is tricky. It's never really possible to anticipate an exact bottom, or the timing behind the recovery. Therefore, investors should be highly attuned to what leading chip and tech names say this earnings season about the demand environment, as well as their own investment plans.
