With semiconductor stocks tumbling again, some chip investors may think it is time to go bargain hunting. That is not a good idea.
While share prices are lower, the main problem is stocks are going down for legitimate reasons. And recent developments suggest business trends are getting worse—not better, meaning there could be more downside ahead.
On Friday, investors were spooked about a potential global recession a day after FedEx ( FDX
) warned it would report weaker than expected profit results. In early trading, shares of two major chip companies—Intel and Nvidia
—hit new lows with both now down about 45% and 55%, respectively, this year.
It is important to remember if earnings outlooks come down, stocks can become more expensive on a valuation basis even if stock prices are falling. And the latest flurry of data points from chip companies hasn’t been ideal.
A week later, a senior executive at Samsung Electronics (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 had originally thought going into next year.
Then at technology conferences this week, executives at Western Digital ( WDC
) and Seagate ( STX
) suggested business conditions were still deteriorating, pointing to caution from cloud customers. This comes even after both companies had already cut forecasts by large margins just a few weeks ago.
Finally, Intel ( INTC
) CEO Pat Gelsinger also said at a conference last week “it’s pretty rough out there” and business may be a “little bit worse” since they gave guidance on second quarter earnings call in late July.
With another round of cautious commentary on top of continued weak pricing for processors, memory chips, and graphics cards at retailers and used marketplaces, it looks likely demand for technology products isn’t improving.
The incoming clouds for the semiconductor industry seem to be getting darker. For now, there is no upturn in sight.
Write to Tae Kim at [email protected]