Hot Picks: Semiconductor stocks could be set for a sharp rebound

A recovery may be taking shape in parts of the semiconductor sector after a prolonged downturn, with margin pressure and weak shipments setting the stage for stronger earnings growth.

BNN Bloomberg spoke with Christopher Danely, managing director and semiconductor lead analyst at Citi, about why microcontrollers and analog chips could outperform as demand normalizes and AI-related growth remains resilient.

Key Takeaways

• The semiconductor sector may be entering a recovery phase after margins and shipments fell sharply during the recent downturn.
• Microcontroller and analog chips are positioned for outsized earnings growth as customers restock and utilization improves.
• Margin recovery could be significant, with some chipmakers expected to regain 10 to 15 percentage points in gross margins.
• Industrial and automotive demand remain central drivers for non-AI semiconductor growth.
• AI-related custom chip demand continues to support earnings growth alongside a broader cyclical rebound.

Read the full transcript below:

ANDREW: Hot picks today are in semiconductors, and our guest has Microchip Technology as his top idea. We’re joined by Chris Danely, managing director and semiconductor lead analyst at Citi. Chris, thanks very much for joining us.

DANELY: Thanks for having me, Andrew.

ANDREW: It’s a fairly generic name — Microchip Technology, ticker MCHP. Can you remind us what its role is in the industry and what attracts you to the stock?

DANELY: Sure. About two-thirds of Microchip’s business is microcontrollers. A microcontroller is essentially a simplified microprocessor used in everyday applications. You don’t need a $100 Intel or AMD chip in a coffee maker, an e-bike or a monitor.

These products are everywhere. It’s roughly a US$50-billion market, one of the larger markets in semiconductors, and Microchip has what we think is the best microcontroller offering in the industry.

ANDREW: So these are lower-tech products. We’re not talking about artificial intelligence here.

DANELY: Not primarily. There is some AI exposure, particularly in robotics, which was a major theme at this year’s CES trade show. But about 40 per cent of the business is industrial, and roughly 25 per cent is automotive.

In a high-end vehicle, there can be US$100 to US$150 of microcontroller content. In factory automation, they’re everywhere — HVAC systems, temperature controls, sensors, fuel gauges and tire-pressure monitors all rely on microcontrollers.

These chips typically sell for about US$1 to US$1.50 and cost roughly 50 to 60 cents to manufacture, which makes it a very profitable and very ubiquitous business. It’s not flashy, but it’s extremely important.

ANDREW: Texas Instruments has been around a long time. Remind us what it does and where you see growth.

DANELY: Texas Instruments’ core business is analog semiconductors, particularly high-end analog. Analog chips are similar in that they’re used in virtually anything that plugs into a wall or uses electricity, converting power into something usable by the device.

Texas Instruments is the largest analog chipmaker in the world. The analog market is roughly US$150 billion, so it’s massive. For every dollar of microcontroller content, you typically have about US$1.50 of analog content alongside it.

These are two of the highest-margin products not just in semiconductors, but across industries. Both Microchip and Texas Instruments are coming out of a downturn, and their margins are currently very depressed.

Gross margins are down 10 to 15 percentage points. In an upturn, we expect those margins to recover by a similar amount. At peak, Microchip could reach about 70 per cent gross margins and 50 per cent operating margins, while Texas Instruments could see mid-60s gross margins and operating margins in the 40 per cent range.

We think this sets up the strongest earnings growth in the semiconductor sector. AI has been the focus, and we like those stocks as well, but we believe the biggest surprise this year will be an analog and microcontroller upturn after a very weak year.

ANDREW: We have about a minute left. Can you give us your take on Broadcom?

DANELY: Broadcom is the second-largest AI semiconductor company after Nvidia. Unlike Nvidia, which sells GPUs broadly, Broadcom designs custom chips in partnership with customers.

Google represents about two-thirds of Broadcom’s AI-related revenue. Broadcom also works with companies like OpenAI and Meta. What’s new is that Google has begun selling its custom chips, which Broadcom manufactures, to other companies.

We believe firms like Anthropic are already buying them, and we’ve written that Amazon and Microsoft could also buy these chips alongside their own designs and Nvidia products.

Google’s proprietary chip, known as a TPU or Tensor Processing Unit, being sold more broadly represents the next leg of growth for Broadcom. On top of that, Broadcom is one of the most profitable semiconductor companies in the industry, with gross margins around 75 per cent.

ANDREW: Chris, we’ll have to leave it there. Thanks very much for your time.

DANELY: Thank you.

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This BNN Bloomberg summary and transcript of the Jan. 9, 2026 interview with Christopher Danely are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.