By Philip van Doorn
Semiconductor stocks have been great outperformers over long periods, but their movement this year underscores how cyclical the industry can be.
Here is a look behind the numbers that are driving down shares of chip makers, followed by a summary of the group’s excellent long-term record and a look at what may lie ahead.
Over long periods, investors love to see consensus estimates for companies’ sales and profits increasing steadily. What can be better than a smooth upward slope to the right?
The most common valuation metric used by stock investors is the forward price-to-earnings ratio — a company’s current share price divided by the consensus earnings-per-share estimate for the following 12 months. It is reasonable to expect the rolling 12-month estimates to increase as time passes by. Those increases support rising stock prices over time.
A look at the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -1.19% illustrates that some of the P/E denominators have fallen hard recently. This index of 30 U.S.-listed chip makers is weighted by market capitalization and tracked by the iShares Semiconductor ETF /zigman2/quotes/209255350/composite SOXX -1.13% . Here’s a snapshot of the exchange traded fund’s forward P/E ratios as of Sept. 2 and June 30:
|Current forward P/E||Closing price – Sept. 2||Consensus EPS estimate – NTM||Forward P/E – June 30||Closing price – June 30||Consensus EPS estimate – NTM – June 30|
This may not look so bad — SOXX’s share price has risen since the end of June and the ETF’s rolling 12-month consensus EPS estimate has declined by 7%. Then again, investors aren’t pleased — SOXX is down 34% this year.
Now let’s dig into the SOXX 30 for some ugly numbers. Here’s a look at changes in rolling forward EPS and sales estimates among analysts polled by FactSet for the 12 largest U.S.-listed makers of semiconductors or related equipment (by market value) since the end of June:
|Company||Ticker||Change in EPS estimate||EPS estimate – NTM||EPS estimate – NTM – June 30||Change in sales estimate||Estimated sales – NTM ($bil)||Estimated sales – NTM – June 30 ($bil)|
|Taiwan Semiconductor Manufacturing Co. Ltd. ADR||/zigman2/quotes/204359850/composite TSM||5%||$6.27||$5.97||4%||$79,992||$77,099|
|Nvidia Corp.||/zigman2/quotes/200467500/composite NVDA||-31%||$4.04||$5.88||-16%||$30,071||$36,005|
|Broadcom Inc.||/zigman2/quotes/200646538/composite AVGO||3%||$40.23||$39.23||2%||$34,878||$34,204|
|ASML Holding NV ADR||/zigman2/quotes/210293876/composite ASML||-8%||$18.06||$19.69||-5%||$24,505||$25,706|
|Texas Instruments Inc.||/zigman2/quotes/202237907/composite TXN||2%||$9.09||$8.88||2%||$19,893||$19,583|
|Qualcomm Inc.||/zigman2/quotes/206679220/composite QCOM||-1%||$12.98||$13.08||-1%||$46,838||$47,269|
|Advanced Micro Devices Inc.||/zigman2/quotes/208144392/composite AMD||3%||$4.67||$4.54||3%||$28,641||$27,907|
|Intel Corp.||/zigman2/quotes/203649727/composite INTC||-26%||$2.57||$3.47||-11%||$68,033||$76,143|
|Applied Materials Inc.||/zigman2/quotes/209393259/composite AMAT||-4%||$7.98||$8.31||-3%||$26,215||$27,097|
|Analog Devices Inc.||/zigman2/quotes/201631938/composite ADI||-2%||$9.64||$9.82||-1%||$12,135||$12,259|
|Micron Technology Inc.||/zigman2/quotes/205710729/composite MU||-51%||$5.18||$10.67||-27%||$26,976||$37,165|
|Lam Research Corp.||/zigman2/quotes/208077897/composite LRCX||-1%||$37.29||$37.83||-2%||$19,045||$19,417|
Click on the tickers for more about each company, including analysts’ ratings and the latest financial results and corporate guidance that have driven the estimate revisions. Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on MarketWatch quote pages.
For the chip makers, 2022 has been difficult as industry-supporting trends of the previous two years have reversed. Pandemic-era stimulus, consumer habits and supply shortages worked in the industry’s favor or at least supported price increases.
The table above has some notable cuts in EPS and sales estimates:
Nvidia Corp.’s /zigman2/quotes/200467500/composite NVDA -1.51% rolling consensus 12-month EPS estimate has declined by 31% since the end of June, while its consensus 12-month sales estimate has fallen by $5.9 billion, or 16%.
Intel Corp.’s /zigman2/quotes/203649727/composite INTC -1.41% consensus EPS estimate is down 26% since the end of June, while its sales estimate has dropped $8.1 billion, or 11%.
Micron Technology Inc.’s /zigman2/quotes/205710729/composite MU -1.46% EPS estimate has declined 51% since June 30, as its sales estimate has plunged by $10.2 billion, or 27%.
All but four of the largest 12 SOXX companies have had their EPS and sales estimates increase since the end of June.
Looking again at the full SOXX 30, these 12 companies have bucked the trend since the end of June, with consensus earnings and sales estimates both increasing: