Previewing the third-quarter results of semiconductor companies, Jefferies said it favors Advanced Micro Devices, Inc. (NASDAQ: AMD). Additionally, the firm said it considers Analog Devices, Inc. (NASDAQ: ADI), Texas Instruments Incorporated (NASDAQ: TXN) and Microchip Technology Inc. (NASDAQ: MCHP) as " analog renaissance" plays.

Analyst Mark Lipacis said, although consumption of semiconductors is increasing, the PHLX Semiconductor Index has outperformed the S&P 500 Index by 700 basis points since Jefferies' annual Semis + HW conference on Aug.30.

Therefore, the analyst said it makes sense to be selective heading into the third-quarter reporting season. The analyst said semiconductor stocks still trade at a slight discount to the S&P 500 Index.

Over the past four quarters, Jefferies said semiconductors have shipped at a faster rate than their OEM customers. That said, the firm expects semiconductors to ship at the same rate as their OEM customers, starting in the third quarter of 2017 for the next four quarters.

Citing its sample of OEMs, the firm said semiconductor consumption appears to be accelerating, which it feels is consistent with the view of Jefferies' Global Equity Strategist that there is a budding U.S. capex cycle.

See also: Semiconductors: Which Stock Positions To Add To, Which To Take Profits In

Stock-Specific Recommendations

Jefferies likes AMD, based on indications that demand for its EPYC server microprocessor and its Ryzen desktop microprocessor is positive.

The firm also likes analog renaissance plays Texas Instruments, Analog Devices and Microchip Technology, as it expects consolidation to drive ASPs higher and operating margins by 500-1,000 basis points over the next five years.

Jefferies named NVIDIA Corporation (NASDAQ: NVDA) as its top pick, with the stock having risen 13 percent since Aug. 30, compared to S&P 500's 6 percent advance. Though the firm sees Volta driving upside surprises over the next 12-24 months, it thinks it night take another quarter or two for Volta to really hit its strides.

The firm recommended rotation out of Intel Corporation (NASDAQ: INTC), which has outperformed the Philadelphia Semiconductor Index by 400 basis points since its July 10 downgrade to Underperform. Also, the firm feels Intel's profitability has a downward bias.

Jefferies said the outperformance of Intel has created an opportunity to rotate out of the shares of the company and into Texas Instrument, Analog Devices, Microchip Technology and Maxim Integrated Products Inc. (NASDAQ: MXIM). The firm thinks the profitability of these analog renaissance plays has an upward bias.

The firm added Maxim Integrated's positive report last week gives it higher conviction in this thesis.

Ratings/Price Targets

AMD: Buy/$19.

Intel: Underperform/$30.

Nvidia: Buy/$230.

Analog Devices: Buy/$105.

Microchip: Buy/$106.

Maxim Integrated: Buy/$58.

Texas Instruments: Buy/$110.

At Time Of Publication

AMD shares were up 2.14 percent at $14.10.

Intel was adding 1.04 percent to $40.85.

Texas Instruments was advancing 0.83 percent at $95.97.

Analog Devices shares were ever so slightly falling, down 0.13 percent, at $88.81.

Microchip Technology was down 0.09 percent at $92.65.

Maxim Integrated was advancing 0.10 percent to $52.14.

Related Link: Intel And AMD: Are Q3 Expectations Realistic?