Goldman Sachs highlights semiconductor stocks ahead of earnings

Goldman Sachs has highlighted several semiconductor stocks with varying outlooks ahead of third-quarter earnings. The firm sees upside potential for Applied Materials, Seagate Technology, and Microchip Technology, while identifying downside risks for Qualcomm, KLA Corporation, and Western Digital. The SOX semiconductor index has fallen 11% over the past two months, contrasting with a 4% rise in the S&P 500, which Goldman Sachs views as a favorable trading setup for the sector.

The investment bank maintains a Buy rating on Applied Materials, anticipating raised margin targets and a robust growth outlook at SEMICON West in October. Goldman Sachs also holds a Buy rating on Cadence Design Systems, expecting increased guidance for 2026 driven by agentic AI. Microchip Technology is seen as having upside due to broad industrial demand, aerospace/defense, and datacenter sectors.

Goldman Sachs rates Qualcomm, KLA Corporation, and Western Digital as Neutral. KLA Corporation, currently trading at $206.89 with a P/E ratio of 56.39, is considered overvalued relative to its Fair Value, despite a recent 9.37% surge. The firm expects modest upside for Qualcomm but cautions that the stock may be ahead of itself given strong investor expectations tied to agentic AI.

In recent news, KLA Corporation reported fourth-quarter fiscal 2026 results exceeding expectations, with $3.658 billion in revenue and a 62.4% gross margin. Analysts have responded with mixed adjustments to their price targets, reflecting varied sentiment about the company's future performance.