Christopher Danely, an analyst at Citi Research, warned in a report that after two years of inventory shortages, chips are facing a surplus problem, which may cause chip stocks to give up all the gains during the epidemic.
Danely pointed out that only “half” of the PC, wireless sector’s chip glut problem is solved today, as evidenced by Intel (INTC-US), AMD (AMD-US), Huida (NVDA-US),Qualcomm (QCOM-US) and other companies have recognized a large amount of inventory expenses in their recent financial reports, and Qualcomm estimates that the inventory problem will continue until June.
Danely also said demand from the “other half” of chip suppliers, while still there, is showing signs of slowing, especially in the increasingly important data center market.
Philadelphia SemiconductorThe index has lost 14% over the past 12 months, a drop of less thanNasdaq Composite IndexBut Danely warned that due to the recent 32% drop in chip industry profit estimates, as the automotive, industrial and data center markets correct,Philadelphia SemiconductorThe index could drop “at least” another 10%.
“In fact, we estimatefee halfWill fall another 30%, mainly due to earnings per share (EPS) decline and multi-directional pressure. “fee halfIt could fall to around 2,075, its lowest level since June 2020.
Currently, Danely is bullish on Microchip (MCHP-US) and AMD, while bearish on Intel, Micron (MU-US), and he will Analog Devices (ADI-US) is listed as preferred. “We believe semiconductor stocks will bottom out after everyone, including ADI and MCHP, cut earnings estimates, near-trough valuations and cut capex.”
At the same time, Danely also said that after the economic downturn is over, he is more optimistic about stocks with long-term EPS growth, such as Micron, Global Foundries (GFS-US), ON Semiconductor (ON-US) wait.
Burns McKinney, investment group manager of NFJ Investment Company, also said that the decline in PC demand after the epidemic is a test for semiconductors. Still, he is bullish on semiconductors’ long-term prosperity, citing signs of cooling inflation that will eventually allow the Federal Reserve to slow its pace of tightening in the second half of the year.
