2 Chip Stocks to Avoid in the Near Term, According to Truist Analysts

Truist Securities analysts have downgraded their ratings on two prominent semiconductor stocks, Microchip Technology and Analog Devices, citing concerns over valuations and a less favorable outlook for the semiconductor sector as a whole.

Microchip’s stock rating was lowered from Buy to Hold. Although the analysts believe the company’s fundamentals might have reached a low point, with a significant recovery expected in 2025, they noted that the stock is currently trading at a historically elevated price-to-earnings ratio. The price target for Microchip has been reduced from $89 to $80, reflecting a multiple of 24 times the revised 2025 earnings per share estimate of $3.33, down from the previous $3.69.

In addition to the individual stock downgrades, Truist has altered its overall perspective on the semiconductor sector, moving from a Constructive to a Neutral rating. Analysts pointed out that industry revenue growth has peaked and is beginning to decline, while stock investment returns have been strong throughout the current cycle, making it challenging to achieve significant additional returns going forward.

Analog Devices also experienced a downgrade, shifting from Buy to Hold. Similar to Microchip, analysts believe Analog Devices’ fundamentals may have bottomed out, with expectations for recovery in 2025. They noted that while optimistic investors are looking forward to a significant rebound, consensus forecasts already predict strong growth, with a projected 17% year-over-year revenue increase and a 31% growth in earnings per share for 2025.

Currently, Analog Devices’ stock is trading at 28 times the anticipated 2025 earnings per share, which analysts consider to be its peak valuation. The new price target for Analog Devices has been set at $233, down from $266, based on a multiple that reflects a traditional discount compared to its peers in the analog sector.