Susquehanna: Data center demand drives semiconductor industry uptrend, raises target prices for Coherent and other companies.

Investment bank Susquehanna's latest research report points out that against the backdrop of continued expansion of artificial intelligence and cloud computing, the demand for data center infrastructure is becoming the core growth engine for the semiconductor industry, potentially driving mild upward revisions in the first quarter performance and second quarter guidance for multiple companies. The report indicates that with the rapid growth of AI workloads, there is a significant increase in demand for server-side CPUs, benefiting AMD and Intel Corporation. At the same time, it is expected that Arm Holdings' CPU share in mega-scale cloud providers will continue to increase. In the custom chip sector, cloud providers are incorporating more suppliers into their roadmaps, benefiting Broadcom Inc. and Marvell Technology, Inc. Meanwhile, AI leader NVIDIA Corporation continues to maintain strong growth momentum, with its Blackwell and Rubin architecture products expected to generate over $1 trillion in revenue by the end of 2027. Optical communications and AI networks are the biggest sources of elasticity Susquehanna analyst Christopher Rolland's team points out that the industry momentum is particularly strong in the fields of optical communications and AI networks, mainly driven by the continued expansion of 800G networks and the start of the 1.6T technology cycle, while technologies such as optical switching and co-packaged optics are also accelerating. The report emphasizes that the expansion of the total addressable market for networks not only benefits optical modules but also drives demand growth for copper connection solutions, including AEC, LE, and DSP-related devices, with optimistic prospects. At the individual stock level, Coherent, Lumentum, and Fabrinet are identified as major beneficiaries. Susquehanna has raised the target price for these three companies from $250 to $425, from $550 to $1100, and from $570 to $850, respectively. Furthermore, Credo Technology's target price has also been raised from $170 to $200. Pressure on demand outside of data centers In contrast, growth opportunities in end markets outside of data centers are more limited. Susquehanna predicts that apart from Apple Inc., the smartphone market in 2026 will face downward pressure, with a year-on-year shipment decline of around 10%. The automotive sector is also showing weakness, with Tesla, Inc. delivering lower than expected in the first quarter, reflecting weaker-than-expected end demand. Industrial semiconductor benefiting from spillover demand In the field of industrial chips, Susquehanna has slightly raised the target prices for several companies, including raising the target price for Texas Instruments Incorporated from $260 to $275, for Microchip Technology Incorporated from $90 to $95, and for Analog Devices, Inc. from $400 to $475.