Ahead of the Bell: Goldman Sachs upgrades chip sector

"We are comfortable in taking a more aggressive stance on the sector and expect stocks to outperform the market into 2009 after several years of significant underperformance," analyst James Covello said in a note to clients.

Fundamentals for the industry are expected to improve late this year, and stocks are trading a "reasonable levels" given their multiyear underperformance, he said.

"Semiconductor stock performance tends to be closely related to trends in semiconductor inventories, with stocks outperforming the market coming out of an inventory correction and underperforming the market heading into an inventory correction," analyst James Covello said in a note to clients.

Such an inventory correction is now "imminent," which would provide the boost later this year, he said.