Here at the Fool, we generally don't pay much attention to Wall Street's stock analysts. If anything, we like to make fun of their endless upgrades and downgrades or simply stick analysts in a cage match against the wisdom of our CAPS crowds.

But every once in a while, an analyst report actually seems worthy of attention, and I'd be remiss not to give it a passing glance. That's the case today with a wide-ranging update on the semiconductor industry from Broadpoint.AmTech analyst Doug Freedman.

Have we reached the top already?
Seeing the industry return to business as usual after working through supply-and-demand problems in recent quarters and the resulting climb in share prices, Freedman is lowering the entire chip sector from buy to hold. Chip producers responded quickly to renewed retail appetites and the steepest part of this sector's recovery seems to be behind us, in Freedman's opinion.

Some stocks have also followed business results skyward and now appear to have reached their full value. So it's time to "play a little defense" right now. In particular, Freedman thinks this is no time to be buying Advanced Micro Devices (NYSE:AMD), Analog Devices (NYSE:ADI), and NVIDIA (NASDAQ:NVDA) -- all three stocks are dropped to a "hold" rating.

Sure enough, NVIDIA proved unable to hold on to its fifth CAPS star over the summer, and Analog recently fell to a three-star rating. In both cases, a skyrocketing stock price is at least partly to blame for the lost luster. I'm not entirely convinced that any of these three scapegoats has hit their peaks yet, but I really can't blame anybody for taking some profits off the table, either:

 

Year-to-Date Returns

AMD

162%

Analog Devices

45%

Nvidia

89%

Lots of "buys"
But in our CAPS database, Broadpoint.AmTech still has a "buy" rating on 43 semiconductor stocks versus just two "sell" ratings. And even this ostensibly negative research note holds up 12 chip stocks as attractive buys right now. For example, some of the arguments:

  • Atheros Communications (NASDAQ:ATHR) looks tasty thanks to brisk sales of smartphones and netbooks with Wi-Fi connections -- an assessment I'd agree with.
  • Maxim Integrated Products (NASDAQ:MXIM) is a triple play: Generous share buybacks, expanding gross margins, and exposure to the recovering industrial sector add up to a "buy." Well, OK, but I'm no expert on Maxim.
  • And then things get dicey: National Semiconductor (NYSE:NSM) shares two of Maxim's three positives, only missing out on the buybacks. But to me, National looks risky for a long-term investor.

Why should I listen to Freedman?
Color me confused. Broadpoint.AmTech moves three of its buy ratings down to neutral and then calls the whole sector "neutral." This might have made sense if the three not-so-impressive stocks were giants in the industry, whose very mention makes the mountains of Wall Street shake. But that's not the case here: We're talking about three mid-cap stocks in an industry where many true giants roam. Titans like Texas Instruments (NYSE:TXN) are still in the "buy me now" column -- and presented as timely buys because their large market caps provide a buffer against volatility.

The firm's track record in the semiconductor sector certainly inspires confidence: Broadpoint.AmTech gets its chip stock picks right an impressive 60% of the time, and the firm overall outperforms 84% of our CAPS members, earning it an All-Star sticker. Freedman is an analyst whose opinion carries real weight when it comes to the semiconductor industry.

OK, so what did he really mean to say?
I just wish he'd take better care to align the plethora of single-stock ratings with how he assesses entire sectors. I agree with most of the stock-by-stock ratings and the reasons behind them. But in the end, I still see the chip sector outperforming the market for the foreseeable future -- and I think Doug is on my side in his heart of hearts.

To me, it looks like Broadpoint.AmTech still really likes this sector and believes in continued recovery. They just don't want to put that particular rubber stamp on the whole shebang. And from that perspective, I'm back to agreeing with Freedman and company.

Is the chip feast just starting or about to peak already? The comments box below anxiously awaits your thoughts on the matter, dear Fool.

NVIDIA is a Motley Fool Stock Advisor pick. The Fool owns shares of Atheros Communications. Atheros Communications is a Motley Fool Hidden Gems selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. He is also an All-Star CAPS player, ranked in the top 13% of those 68,000 members. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.