Bulletin
Investor Alert

New York Markets Open in:

The Ratings Game Archives | Email alerts

Aug. 18, 2022, 2:02 p.m. EDT

Chip stocks tanked as pandemic demand for electronics slumped, but there are still some winners

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Micron Technology Inc. (MU)
  • X
    NVIDIA Corp. (NVDA)
  • X
    Intel Corp. (INTC)

or Cancel Already have a watchlist? Log In

By Wallace Witkowski

After two years of unprecedented chip sales and demand related to the COVID-19 pandemic, a long-feared reversal has struck the semiconductor industry, but some markets are still performing strongly — for now.

Last week, two of the biggest names in the semi industry — memory-chip specialist Micron Technology Inc. /zigman2/quotes/205710729/composite MU +0.89% and graphics-chip titan Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -0.36% — warned that a sharp downturn in sales has begun. Those warnings followed dismal results and a forecast revision from Intel Corp. /zigman2/quotes/203649727/composite INTC -1.96% , which has long been the U.S. leader in chip sales.

Wall Street analysts have been expecting a turnaround in the chip sector for months . And as pandemic-era shortages eased and customers realize they ordered too many semiconductors in the frantic rush of the chip crunch, stocks cratered. So far, though, the downturn shown in earnings reports has been focused on chips meant for consumer electronics, such as personal computers and smartphones, which have seen a similar sharp downturn in demand as the pandemic stretches through its third year.

Bernstein analyst Stacy Rasgon told MarketWatch in an interview that “the consumer side of things seems to kind of sort of be in a recession.”

“Intel’s PC stuff imploded. Nvidia, negative preview the other day, their GPUs have imploded. Memory has been horrendous. Anything that is consumer-focused has been bad: PCs, smartphones, GPUs, TVs,” Rasgon told MarketWatch, adding that it will not be a short-term problem — “Things are getting weaker and they don’t usually get weaker for one quarter.”

“There was a lot of accelerated demand, and now, best case, it’s normalizing, sort of like reversion to the mean,” he said.

Read also: What’s the best way to invest in tech stocks right now? This strategy is working well for one fund manager

Demand is not falling off — yet — in a couple of hot sectors, however. The auto and industrial businesses particularly appear to still have strength, and it shows up in the respective stock performance of chip companies focused on those sectors.

Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN -0.82% , which has a big presence in auto chip sales,  reported an outlook that topped Wall Street estimates at the time . Other U.S. suppliers to the auto industry include Analog Devices Inc.  /zigman2/quotes/201631938/composite ADI -2.35%  and ON Semiconductor Corp.  /zigman2/quotes/202641012/composite ON -2.54% , , while outside the U.S., big names include Netherlands-based NXP Semiconductors NV /zigman2/quotes/202999625/composite NXPI -1.41% , Japan’s Renesas Electronics Corp. /zigman2/quotes/203872935/delayed JP:6723 -4.75% and Murata Manufacturing Co. /zigman2/quotes/204266745/delayed JP:6981 -3.35% , and Germany’s Infineon Technologies AG /zigman2/quotes/203152288/delayed XE:IFX +1.57%

“The demand for auto chips is strong with a backlog that will sustain for at least the next year, making chip stocks a safer port in the coming economic storm,” Maribel Lopez, principal analyst at Lopez Research, told MarketWatch.

“There will be a coming slump, but there’s currently pent-up auto demand,” Lopez said. “What I expect to see happen is dealers won’t be able to charge above [the suggested retail price] as demand wanes.”

While those chips are still selling strongly, the most worrisome development this earnings season could be a softening in data-center growth, a big reason for the excitement about Nvidia and Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -2.22% in recent years. Case in point: While Intel fell short of Wall Street expectations for data-center sales by about $1.5 billion, AMD picked up an additional $700 million in data-center sales it didn’t have in the year-ago quarter. Now, Nvidia’s data-center growth is looking to be underwhelming.

Read: The end of one-chip wonders — Why Nvidia, Intel and AMD’s valuations have experienced massive upheaval

Intel was “overshipping by a massive amount,” Rasgon told MarketWatch. “I’ve been making that point for over a year. That is now biting them. And now they are calling out some pretty significant channel inventory corrections.”

Intel is blaming supply-chain issues, basically saying that manufacturers can’t build as many servers because they can’t find other components, such as power supply parts, but Intel’s issues could just come down to competition as well, Rasgon said. While other executives also mention the same issues as Intel in their earnings reports, “they’re not getting nailed nearly as much,” the analyst said.

“I don’t know if those supply chain issues explain Intel’s miss,” said Rasgon, who has buy-grade ratings on AMD and Nvidia and a sell-grade rating on Intel.

/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 50.10
+0.44 +0.89%
Volume: 24.59M
Sept. 23, 2022 4:00p
P/E Ratio
5.71
Dividend Yield
0.83%
Market Cap
$55.27 billion
Rev. per Employee
$753,233
loading...
/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 125.16
-0.45 -0.36%
Volume: 66.33M
Sept. 23, 2022 4:00p
P/E Ratio
41.05
Dividend Yield
0.13%
Market Cap
$311.65 billion
Rev. per Employee
$1.32M
loading...
/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 27.52
-0.55 -1.96%
Volume: 43.49M
Sept. 23, 2022 4:00p
P/E Ratio
5.90
Dividend Yield
5.31%
Market Cap
$113.00 billion
Rev. per Employee
$606,061
loading...
/zigman2/quotes/202237907/composite
US : U.S.: Nasdaq
$ 161.29
-1.33 -0.82%
Volume: 6.94M
Sept. 23, 2022 4:00p
P/E Ratio
17.64
Dividend Yield
3.08%
Market Cap
$147.37 billion
Rev. per Employee
$632,000
loading...
/zigman2/quotes/201631938/composite
US : U.S.: Nasdaq
$ 141.92
-3.42 -2.35%
Volume: 4.84M
Sept. 23, 2022 4:00p
P/E Ratio
39.31
Dividend Yield
2.14%
Market Cap
$73.00 billion
Rev. per Employee
$449,628
loading...
/zigman2/quotes/202641012/composite
US : U.S.: Nasdaq
$ 63.31
-1.65 -2.54%
Volume: 8.23M
Sept. 23, 2022 4:00p
P/E Ratio
16.40
Dividend Yield
N/A
Market Cap
$27.43 billion
Rev. per Employee
$253,940
loading...
/zigman2/quotes/202999625/composite
US : U.S.: Nasdaq
$ 152.94
-2.19 -1.41%
Volume: 2.68M
Sept. 23, 2022 4:00p
P/E Ratio
16.69
Dividend Yield
2.21%
Market Cap
$40.16 billion
Rev. per Employee
$398,323
loading...
/zigman2/quotes/203872935/delayed
JP : Japan: Tokyo
¥ 1,243.00
-62.00 -4.75%
Volume: 13.35M
Sept. 26, 2022 3:00p
P/E Ratio
12.23
Dividend Yield
N/A
Market Cap
¥2549.77 billion
Rev. per Employee
¥61.83M
loading...
/zigman2/quotes/204266745/delayed
JP : Japan: Tokyo
¥ 7,001.00
-243.00 -3.35%
Volume: 3.10M
Sept. 26, 2022 3:00p
P/E Ratio
14.34
Dividend Yield
2.14%
Market Cap
¥4634.95 billion
Rev. per Employee
¥23.33M
loading...
/zigman2/quotes/203152288/delayed
XE : Germany: Xetra
23.33
+0.36 +1.57%
Volume: 871,422
Sept. 26, 2022 10:36a
P/E Ratio
16.15
Dividend Yield
1.16%
Market Cap
€30.95 billion
Rev. per Employee
€260,183
loading...
/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 67.96
-1.54 -2.22%
Volume: 87.69M
Sept. 23, 2022 4:00p
P/E Ratio
28.57
Dividend Yield
N/A
Market Cap
$109.71 billion
Rev. per Employee
$1.39M
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.