Goldman Sachs Picks Three Chip Stocks for Tactical Buys Ahead of Earnings

Goldman Sachs has shifted to a more favorable view on semiconductor stocks ahead of third-quarter earnings, highlighting Applied Materials, Seagate Technology, and Microchip Technology as top tactical buys. The firm noted that the Philadelphia Semiconductor Index has dropped 11% over two months, while the S&P 500 gained 4%, creating a better entry point for investors compared to the cautious setup before the second quarter.

Analyst James Schneider expects earnings estimate upside across most chip sub-sectors, particularly in equipment, compute, and storage. Applied Materials is anticipated to raise margin targets at SEMICON West on October 13, Seagate is expected to benefit from strong hard-drive pricing and HAMR progress, and Microchip's analog recovery is seen as underappreciated. Meanwhile, Qualcomm, KLA, and Western Digital are flagged as names with tactical downside risk.

Applied Materials is set to present at SEMICON West on October 13, with Goldman expecting management to raise margin targets and outline a robust growth outlook. The stock has already rallied about 12% in the past week and is up 110.14% year-to-date, with a Strong Buy consensus and an average price target implying roughly 25% upside.

Seagate Technology's thesis centers on hard disk drive pricing and its technology roadmap, with projected revenue about 2% above Wall Street estimates for the quarter. The stock is up 208.29% year-to-date and carries a Strong Buy consensus, with analysts seeing about 27.96% additional upside.

Microchip Technology rounds out Goldman's tactical list, with broad strength across end markets led by data centers and aerospace and defense. The stock is up 27.62% year-to-date, with the highest analyst upside at 30.49%, though its consensus rating is Moderate Buy.

Goldman also identified tactical downside risk in Qualcomm, KLA, and Western Digital, all of which carry Neutral ratings at the firm. The contrast between the two lists underscores Goldman's view that the current earnings cycle will reward companies with specific, identifiable catalysts.