Safe haven amid Iran tensions? This chip sector is expected to wear "bulletproof vests."

Cailian Press, March 11 (Editor: Xiaoxiang) According to a senior industry analyst on Wall Street, if the situation in Iran continues, it could benefit analog chip manufacturers…

Evercore ISI analyst Mark Lipacis stated in a recent report to clients that analog chip companies generally have two major advantages in a wartime economy:

First, in terms of revenue composition, many analog chip companies have a relatively high proportion of business in aerospace and defense.

Second, within the semiconductor industry, from a fundamental perspective, analog chip stocks tend to be more “defensive.” Many companies have strong free cash flow yields and solid profitability, making them attractive in volatile markets.

Lipacis pointed out: “During times of military conflict, we are often asked which stocks are the best ‘defense’ plays and which are the best ‘defensive’ investments. Analog chips and microcontrollers (MCUs) often meet both criteria.”

However, recent market trends indicate that investors have not fully embraced this view. For example, Macom Technology Solutions Holdings has risen for two consecutive days but previously declined nearly 20% over four trading days. Microchip Technology also experienced an 11-day consecutive decline earlier this week.

From a revenue perspective, Lipacis noted that Macom may be the most benefited from aerospace and defense, with this sector accounting for about 30% of its sales. In comparison, he added, Microchip Technology’s share is estimated at 21%, and Analog Devices at 10%.

Lipacis believes that from a net leverage ratio perspective, Macom is also attractive. He pointed out that the company, like GlobalFoundries, has a positive net cash position. This is one of the “defensive” features investors might favor.

Another key indicator is free cash flow yield. When discussing analog chip stocks, Lipacis wrote, “The ability to generate free cash flow remains a core factor supporting the defensive nature of this sector.” He highlighted that ON Semiconductor performs well in this regard, with a projected free cash flow yield of 8% based on 2026 estimates.

Lipacis also suggests that investors seeking defensive positions should pay attention to earnings quality. He noted that ON Semiconductor also performs well here: he estimates that this year, its free cash flow could be 60% higher than net profit, while Texas Instruments’ (TI) metric could be nearly 10% higher than net profit.

Finally, he examined dividend yields, noting that Texas Instruments and Microchip both have dividend yields close to 3%.

Analog and industrial chip stocks, after years of pressure, are now in a recovery phase. Although they weakened last week along with the broader semiconductor and cyclical investments, some top-performing analog chip stocks have still outperformed the overall chip sector and the market so far this year.

Texas Instruments has risen 15% so far this year, while Macom Technology has gained 31%. Meanwhile, the S&P 500 has remained roughly flat, and the Philadelphia Semiconductor Index has increased by 13%.

(Cailian Press, Xiaoxiang)