After an 18% summer selloff in chip stocks, Citi asks what comes next

In a note to clients on Tuesday, Citi said it expects chip stocks to recover from their summer downturn, arguing that a packed conference calendar and resilient data-center demand should support a sector whose rally had gotten ahead of itself.

The bank pointed out that the Philadelphia Semiconductor Index fell 18% during the summer as "the group ran into high expectations and a modest deceleration in earnings momentum."

Nevertheless, Citi is looking for a rebound heading into its Global TMT conference, "where we expect positive semis commentary led by AMD, MRVL, LITE, ALAB, and semi caps," the analysts wrote.

Data-center demand is still strong, representing 34% of the industry's total addressable market, while autos and industrials, at 21%, continue their recovery, according to the note.

Demand from PCs and handsets, which account for 42% of the market, remains weak amid memory cost inflation and supply constraints, the report added.

Citi turned more positive on central processing units in the wake of recent earnings and the Hot Chips conference, raising its CPU market projection to $237 billion by 2030 from $29 billion in 2025, representing a 52% compound annual growth rate.

That outlook is above those from AMD, Arm and Nvidia. Citi sees AMD as the principal beneficiary of what it calls a "CPU renaissance," with Intel as a secondary winner.

The bank also lifted its wafer fabrication equipment spending forecast, citing a stronger hyperscaler capital expenditure model. It now sees a 2028 bull case approaching $300 billion, with base-case spending at $257 billion, up from a prior $250 billion.