Investing.com -- The recent pullback in semiconductor stocks, driven by macroeconomic concerns and AI spending uncertainties, presents a buying opportunity, according to Citi.

The firm’s updated outlook for 2025 wafer fabrication equipment (WFE) has improved, reflecting a more favorable market environment, particularly in NAND memory and enterprise SSD demand.

Citi analysts raised their 2025 WFE forecast to $103 billion, a 3% increase from the previous year, citing a more positive outlook for NAND spending, which is now expected to grow by 10%.

This revision comes after supply chain discussions indicated increased NAND Moly technology spending activity, especially at foreign NAND makers.

Citi’s China equipment analyst also expects an uptick in local supply in China, driving growth for WFE vendors.

Despite concerns over AI server demand and GPU restrictions from China, Citi remains optimistic.

The firm models 40% and 20% growth in data center capex for the U.S. big four companies in 2025 and 2026, respectively, driven by continued AI demand and infrastructure build-out.

"We view the pullback in the group on macro and AI spend concerns as a buying opportunity," said Citi.

Citi maintains its Buy ratings on KLAC and NVMI as top picks for large-cap and small- and mid-cap semiconductor stocks, respectively, with LRCX moving up in rankings due to stronger NAND spend prospects.

However, they note that risks such as macro weakness, AI demand overdependence, and geopolitical tensions remain a concern. Citi economists are predicting a slight contraction in global GDP for 2025.

Despite the challenges, Citi sees a path to growth in the semiconductor sector, particularly as AI demand continues to drive investment in data centers.