Citigroup analysts have stated that concerns about a potential "compute glut," sparked by speculation over Meta Platforms, Inc. (META) potentially entering the cloud computing business, are "overblown."

In a detailed analysis of the semiconductor sector, the analysts emphasized that demand for AI computing power remains robust and continues to outstrip supply, a point underscored by a recent 20% price increase for AWS EC2 GPUs.

The firm identified a shortage of DRAM as the primary current constraint on compute capacity.

Based on expectations for higher DRAM chip prices in the second half of 2026, Citigroup has placed Micron Technology (MU) on its positive catalyst watch list.

Conversely, due to tepid growth in smartphone sales, the firm has added Qualcomm (QCOM) to its negative catalyst watch list.

Citigroup also expressed optimism for Advanced Micro Devices (AMD), anticipating the company will increase its GPU market share in the latter half of the year.

Furthermore, Texas Instruments (TXN) is seen as having upside potential from supplying power management chips to NVIDIA (NVDA) in the second half.

The firm is also positive on Applied Materials (AMAT), citing expectations for wafer fab equipment capital expenditure to reach $250 billion or more by 2028.

Applied Materials benefits from a favorable DRAM business mix and trades at a valuation below its industry peers.

Citigroup analysts added that the chip market focused on non-Apple (AAPL) smartphones carries some risk, noting reports that manufacturers like OPPO and Vivo have lowered their smartphone shipment targets.

Ahead of the market open on Monday, the chip sector was rebounding, with Micron Technology shares up nearly 4% pre-market, Qualcomm rising nearly 2%, Advanced Micro Devices gaining over 4%, Texas Instruments up more than 2%, and Applied Materials advancing nearly 6%.