With semiconductor stocks falling again, some chip investors may think it’s time to start bargain hunting. This is not a good idea.
While stock prices are lower, the main problem is that stocks are falling for legitimate reasons. And recent developments suggest business trends are getting worse—not better, meaning there could be more downside ahead.
On Friday, investors worried about a possible global recession a day after FedEx (
) warned that it would report lower-than-expected earnings. In early trading, shares of two major chip companies—Intel and
—hit new lows with both now down about 45% and 55%, respectively, this year.
It’s important to remember that if earnings prospects fall, stocks can become more expensive on a valuation basis, even if stock prices fall. And the latest flurry of data points from chip companies hasn’t been ideal.
Two weeks ago,
) said its potential $400 million in sales in China for the current quarter could be affected by new export restrictions on its advanced AI data center chips.
A week later, a senior executive at
(ticker: 005930.Korea), the world’s largest maker of memory chips, said weak chip demand from its customers may be more persistent than the company initially thought going into next year.
Then, at tech conferences this week, executives at
) suggested that business conditions continued to deteriorate, indicating caution from cloud customers. This comes even after both companies had already cut forecasts by wide margins just a few weeks ago.
) CEO Pat Gelsinger also said on a conference call last week “it’s pretty tough out there” and business could be “a little bit worse” since they gave guidance on their second-quarter earnings call in late July.
With another round of cautious comments on top of continued weak pricing for processors, memory chips and graphics cards in retail and second-hand markets, it seems likely that demand for tech products isn’t improving.
The incoming clouds for the semiconductor industry seem to be getting darker. At present, there is no recovery.
Write to Tae Kim at firstname.lastname@example.org