Goldman Sachs named Applied Materials, Seagate and Microchip as tactical buys heading into third-quarter earnings, pointing to a sector pullback it called significant de-risking. The bank flagged tactical downside risk for Qualcomm, KLA and Western Digital, all rated Neutral.
Goldman Sachs analysts led by James Schneider named Applied Materials, Seagate Technology and Microchip Technology as tactical buys ahead of third-quarter earnings, pointing to a more constructive setup after a sharp pullback in the sector.
A sector reset before earnings
The semiconductor sector has fallen sharply over the past two months, with the Philadelphia Semiconductor Index down 11% over the same stretch. That compares with a 4% gain for the S&P 500 over the same stretch.
According to Goldman Sachs analysts, the decline is "in stark contrast to the 2Q setup," when the bank had signaled a more cautious tactical stance ahead of results. Goldman now sees estimate upside across most sub-sectors, particularly semiconductor equipment, compute and storage.
Applied Materials and Seagate lead the equipment and storage picks
Goldman expects Applied Materials to raise its margin targets and deliver a robust growth outlook at SEMICON West on October 13, ahead of mid-November earnings. The bank expects a strong report driven by DRAM and advanced logic, with management pointing to a wafer fab equipment market growing toward $300 billion over time. The stock has already rallied about 12% in the past week, raising the bar for results.
For Seagate, Goldman forecasts a strong quarter on positive hard disk drive pricing, projecting about 2% revenue upside and guidance roughly 3% above the Street. Investors will focus on capital returns, HAMR volumes and HDD pricing.
Microchip rounds out the tactical picks
Goldman expects broad strength across Microchip's end markets, led by datacenter and aerospace and defense, with about 1% revenue upside and gross margin recovering to roughly 66% by the end of 2026. The bank's fiscal 2027 earnings estimate for Microchip sits about 3% above consensus, reflecting its view that the analog recovery remains underappreciated.
Neutral-rated names flagged for downside risk
Goldman also flagged tactical downside risk for Qualcomm, KLA and Western Digital, all rated Neutral. The bank said Qualcomm may be ahead of itself given strong expectations tied to agentic AI. Separately, KLA's results may lag peers as spending skews toward DRAM. Western Digital, the bank said, should underperform Seagate.
Source: Investing.com
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