- Goldman Sachs has identified Applied Materials, Cadence Design Systems and Microchip Technology as three semiconductor stocks positioned for potential earnings upside, while rating Qualcomm, KLA and Western Digital Neutral.
The semiconductor sector is entering another important earnings period, with Goldman Sachs taking a more constructive view after a sharp pullback across chip stocks.
According to a Barron’s report published Oct. 6, Goldman analyst James Schneider expects several areas of the semiconductor industry to produce results above current estimates. The bank highlighted Applied Materials Inc. (NASDAQ: AMAT), Cadence Design Systems Inc. (NASDAQ: CDNS) and Microchip Technology Inc. (NASDAQ: MCHP) as its preferred tactical names.
The more positive outlook comes after the Philadelphia Semiconductor Index fell about 11% over the previous two months while the S&P 500 gained roughly 4%, according to Goldman. That divergence has created what the bank considers a more favorable setup heading into earnings.
The call comes as investors continue to assess whether the artificial-intelligence investment cycle can sustain the strength that has driven semiconductor stocks higher this year. Recent strength in AI infrastructure stocks has kept the sector at the center of the market, although high valuations and elevated expectations remain important risks.
Applied Materials Leads Goldman’s Semiconductor Picks
Applied Materials is the most direct semiconductor-equipment play among Goldman’s three preferred names. The company supplies equipment used to manufacture advanced chips, including equipment supporting memory and leading-edge logic production.
Goldman expects Applied Materials to raise its margin targets and provide a stronger growth outlook during SEMICON West on Oct. 13, ahead of its fiscal fourth-quarter earnings report scheduled for Nov. 12, Barron’s reported. The bank expects the quarter to benefit from demand tied to DRAM and advanced logic.
Applied Materials reported fiscal third-quarter revenue of $9.1 billion in August, up 25% from a year earlier, while its fourth-quarter sales guidance was $10.25 billion at the midpoint.
The stock has already gained substantially this year, meaning the earnings setup comes with a higher bar. Goldman’s bullish view therefore depends not simply on revenue growth but on whether the company can deliver better margins and improve its longer-term growth outlook.
Cadence Design Systems offers a different form of semiconductor exposure. The company develops electronic-design automation software used by chip designers, making its results closely tied to the continued complexity of processors and custom chips.
Goldman expects Cadence to raise its 2026 revenue guidance to roughly 21%, compared with its current 18% outlook, according to Barron’s. The bank also expects favorable commentary around recurring revenue growth and custom-chip projects connected with AI workloads.
That makes Cadence particularly relevant to investors looking beyond semiconductor manufacturers and equipment suppliers. As chip designs become more complex, demand for the software used to develop those processors can increase alongside broader AI infrastructure spending.
Microchip Technology rounds out Goldman’s preferred group. The company produces microcontrollers and other analog and embedded semiconductor products used across industrial, automotive, aerospace and defense markets.
Goldman expects broad improvement across Microchip's end markets, particularly data centers and aerospace and defense. The firm sees gross margin recovering toward 66% by the end of 2026 and estimates fiscal 2027 earnings roughly 3% above consensus.
Why Goldman Is More Cautious on Qualcomm and Other Chip Stocks
Goldman’s more favorable view is not a blanket call on the semiconductor sector. The bank also identified Qualcomm Inc. (NASDAQ: QCOM), KLA Corp. (NASDAQ: KLAC) and Western Digital Corp. (NASDAQ: WDC) as stocks where expectations may have moved too far ahead of fundamentals.
Qualcomm has benefited from investor enthusiasm around its expansion into data-center computing and artificial intelligence, including its recent agreement with Amazon. Goldman, however, believes expectations surrounding the company’s AI opportunity may be too high for the near term.
KLA faces a different issue. Goldman expects its results to be less favorable relative to peers because semiconductor capital spending is increasingly tilted toward DRAM, while Western Digital could lose ground to Seagate Technology as newer storage technologies gain traction.
The broader setup remains important. Semiconductor stocks have already experienced a significant pullback, while demand tied to AI computing, memory and advanced chip manufacturing remains strong. Recent Micron Technology earnings have provided another indication of how powerful AI-related memory demand has become.
For investors considering chip stocks ahead of earnings, Goldman’s list highlights three different ways to participate in the semiconductor cycle: Applied Materials through manufacturing equipment, Cadence through chip-design software, and Microchip through embedded and analog semiconductors.
The key test will be whether upcoming results and guidance are strong enough to justify the expectations already reflected in their share prices.