As semiconductor stocks tumble again, some chip investors may think it’s time to start looking for bargains. 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 show that business trends are getting worse, not better, which means there could be more downside.
On Friday, investors were spooked by a potential global recession the day after FedEx (
) warned will report weaker than expected earnings results. In early trading, shares of two major chip companies — Intel and
— hit new lows, both now down about 45% and 55%, respectively, this year.
It’s important to remember that if the earnings outlook worsens, stocks can become more expensive on a valuation basis, even if stock prices fall. And the latest flood of data from chip companies hasn’t been ideal.
Two weeks ago,
) said $400 million in potential sales in China for the current quarter may be affected through new export restrictions on its advanced data center AI chips.
A week later, a senior executive at
(ticker: 005930.Korea), the world’s largest memory chip maker, said low demand for chips from its customers may be more persistent than the company originally thought in the coming year.
Then at the technology conferences this week, the heads of
) suggested business conditions continue to deteriorate, indicating caution from cloud customers. This comes even after both companies already cut their forecasts by wide margins just a few weeks ago.
) CEO Pat Gelsinger also said on a conference call last week that “it’s pretty tough out there” and business could be “a little bit worse” as they provided guidance on the second-quarter earnings call in late July.
With another round of cautionary comments on top of continued weak prices for processors, memory chips and graphics cards in retailers and second-hand markets, it seems likely that demand for technology products will not improve.
The inbound clouds for the semiconductor industry seem to be getting darker. So far, no upswing is in sight.
Write to Tae Kim at [email protected]