Chip Stocks Index Could Soar Over 35% This Year, Credit Suisse Analyst Says

Chip stocks are set up for a big rally in 2017, with the PHLX Semiconductor Index soaring more than 35%, as the industry expected to grow faster than the global economy for the first time since the late 1990s, according to analyst John Pitzer at Credit Suisse. His base-case 12-month target for the chip index (SOX) is 1,000, which is 8.6% above current levels, but he sees upside to 1,250 over the next 12 months, which is 36% above current levels. Pitzer said he expects the SOX to retest its 2000 peak of 1,362 over the next 18-to-24 months, which is 48% above current levels. Despite rising barriers to entry, slowing supply growth, continued industry consolidation and diversifying demand drivers, Pitzer said the sector still trades at a 20% to 25% discount to the S&P 500 , by his calculation. "We continue to argue that semiconductors are the safest and cheapest way to play what we have described as the data growth paradigm in technology," Pitzer wrote in a note to clients. As part of his industry call, Pitzer upgraded Texas Instruments Inc. to outperform from neutral and Brooks Automation Inc. to neutral from underperform, while downgrading Rudolph Technologies Inc. to neutral from outperform. The SOX, which climbed 1.4% in midday trade, has rocketed 53% over the past 12 months, while the S&P 500 has gained 18%.