Goldman Sachs warned clients about a downturn coming for the semiconductor sector but still recommends some chip stocks.
"We foresee a cyclical correction approaching and recommend investors to stay selective in Semis," Goldman Sachs analyst Toshiya Hari said in a note Thursday.
Nvidia is Goldman's top choice in the industry, as the firm believes Nvidia continues to have a strong balance sheet. The firm reiterated a buy rating on Nvidia shares and added the stock to its conviction list of stock picks. Nvidia stock fell 0.5 percent in trading Thursday.
Goldman downgraded Analog Devices and Maxim Integrated Products to sell from neutral, as well as Teradyne to neutral from buy, as the firm said there is "an increasingly negative outlook for" analog chipmakers "in particular."
The firm said its No. 1 reason for a coming correction in the industry stems from the number of monthly semiconductor units "tracking meaningfully above what we consider to be the long-term trend-line."