Wells Fargo issued some good news while citing a few risks with chip stocks after the wave of recent selling. Overall, Wells Fargo remains cautious on the semiconductor industry, maintaining a Market Weight sector rating. Outside of PC-related chip companies, Wells Fargo does not expect that chip results or guidance will come in above general expectations. However, the recent drop in prices for these companies has reduced some of the valuation risks that investors might have needed to fear.

In the coming week, Intel Corp. (NASDAQ: INTC), Advanced Micro Devices Inc. (NYSE: AMD) and Linear Technology Corp. (NASDAQ: LLTC) will report earnings. Wells Fargo expects that these companies will meet their September earnings, as well as the December quarter guidance. Outperform ratings were reiterated for Intel and Advanced Micro Devices.

Intel was trading down 1% at $31.55 Monday morning. It has a consensus analyst price target of $34.36 and a 52-week trading range of $23.03 to $35.56. Advanced Micro Devices was trading up about 2% at $2.78. It has a consensus analyst price target of $3.91 and a 52-week trading range of $2.71 to $4.80. Here was a full analyst reaction to the AMD CEO departure news.

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Recent negative chip pre-releases from companies like Microchip Technology Inc. (NASDAQ: MCHP) have suggested risk and uncertainty within the current business environment. At the same time, inventories as of two to three months ago were at reasonable levels throughout the electronics supply chain. Also September sales reports from Taiwan imply that electronics demand might be holding in quite well. Microchip Technology, which was largely responsible for the major drop last week in chip stocks, was trading down about 4% Monday, at $38.27, from its previous close of $39.96. It has a consensus analyst price target of $48.55 and a 52-week trading range of $38.12 to $50.04.

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) guided for an increase in sales for the September quarter of 13% to 14%. However, Wells Fargo expects sales to increase by 15% due to Apple processor builds. For the three notebook original design manufacturers, Compal, Wistron and Inventec, sales rose 21% month over month and 9% year over year for the month of September.

Wells Fargo remains negative on Micron Technology Inc. (NASDAQ: MU) and Broadcom Corp. (NASDAQ: BRCM) with Underperform ratings. Micron was trading even with its previous close at $27.79. It has a consensus analyst price target of $40.42 and a 52-week trading range of $16.17 to $34.85. Broadcom was trading down about 1.5% at $35.53. It has a consensus analyst price target of $43.26 and a 52-week trading range of $24.60 to $41.65.

Other stocks that were rated Outperform included Linear Technology and Altera Corp. (NASDAQ: ALTR). Altera was trading down roughly 1.5% at $30.69 on Monday morning. It has a consensus analyst price target of $38.86, and its 52-week trading range is $30.47 to $38.00.

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A few stocks that Wells Fargo considers good investment opportunities due to low valuations include: Advanced Micro Devices, Spansion, and SunEdison Semiconductor Ltd. (NASDAQ: SEMI) — all of which are rated Outperform. SunEdison was trading barely above its previous close at $16.34. It has a consensus price target of $19.88 and a 52-week trading range of $14.00 to $20.31.

If you really want to know why a $7.7 billion company like Microchip Technology matters so much, it is because it has more than 80,000 customers worldwide and it has a broad snapshot. The commentary from its warnings was a wake-up call:

We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future. … During typical industry corrections, we have returned to sequential revenue growth after two quarters and we currently expect the same this time.

Wells Fargo said of the sector risks:

We have been cautious on the chip sector overall with a Market Weight sector rating. Recent negative chip pre-releases from companies such as Microchip point to risk and uncertainty in the current business environment. On the other hand our inventory data shows that as of just 2-3 months ago inventory was at reasonable levels throughout the electronics supply chain. Recent data points such as Taiwanese month of September sales reports suggest to us that electronics demand might be holding in quite well. We think that, except for perhaps PC-related chip companies, in general it is relatively unlikely that chip results or guidance might come in above general expectations. Nevertheless, we expect that most chip companies will be able to meet investor expectations for September earnings and December quarter guidance.

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