These 2 chip stocks could outperform in a recession: Citi

Investing.com -- Citi expects semiconductor companies (semis) to provide decent near-term guidance during the Q1 earnings season but warns that estimate cuts are likely to follow later in the quarter.

Analysts led by Christopher Danely forecast that chipmakers’ earnings per share (EPS) will decline 10% on average during the Q1 season “and decrease further later in 2025” as the industry begins to absorb the full impact of sharp tariffs.

While initial guidance may come in slightly below consensus, Citi has already taken a more cautious stance by cutting estimates across its coverage by 20% on average, citing a likely tariff-driven recession.

Lower-margin companies like ON Semiconductor (NASDAQ:ON), Micron (NASDAQ:MU), and GlobalFoundries (NASDAQ:GFS) are expected to be hit the hardest. “We believe the companies most at risk are low-margin stocks,” the analysts wrote.

Amid these risks, Citi now favors higher-end analog names, such as Analog Devices (NASDAQ:ADI) and Texas Instruments (NASDAQ:TXN), which tend to show relative resilience during recessions.

These two stocks are now Citi’s top picks, while Broadcom (NASDAQ:AVGO) is the third preference, as analysts expect its guidance “ to be cut less than average.”

On a more positive note, inventory levels across semis remain lean after a prolonged period of unit declines. Analysts believe this could soften the blow and support a sharp rebound once the policy backdrop stabilizes.

Still, Citi sees further risks in key end-markets. Auto semis, in particular, face pressure from inventory overbuild and slowing sales, with analysts estimating that “we are likely halfway through the auto inventory correction.”

Meanwhile, data center capital expenditure (capex) forecasts have also been trimmed as macro uncertainty weighs on hyperscaler spending plans.

Analog sales and units are down about 25% from peak, but Citi sees this as a setup for eventual recovery, especially given indications of outperformance from ADI and TXN in the industrial end-market

“We believe the analog space should be relatively resilient in the event of a recession, given healthier inventory dynamics,” the analysts continued.

Other Buy-rated chipmakers at Citi include Broadcom, Microchip Technology Inc (NASDAQ:MCHP), Micron, and NXP Semiconductors (NASDAQ:NXPI).