Signs of a downturn ahead in the chip cycle are increasing, even though most chipmakers haven't acknowledged it yet, a Wall Street analyst said Thursday. Semiconductor stocks already are depressed on expectations for a sector slump.
"Recent checks with proprietary industry contacts reflect an accelerating and broadening trend of order cancellations that started in April," Truist Securities analyst William Stein said in a note to clients. Those contacts "are reflecting ever-more negative trends."
Device makers are increasingly reluctant to take inventory of chips since they can't complete products amid supply chain constraints for other components. That has led to order cancellations in the computing, consumer electronics and communications infrastructure markets, he said.
Semiconductor stocks look cheap right now, Stein said. But he says he won't turn more positive on the sector until chipmakers begin acknowledging unit and price declines.
Semiconductor Stocks Down 34% This Year
"A typical semi cycle peaks after seven quarters of improving growth," Stein said. "We are now 10 quarters in (three quarters post-peak) and the fade has been slow."
Meanwhile, the semiconductor industry still grew sales over 20% year over year in the first quarter, he noted.
"We anticipate the tone from semi companies to erode from 'great' on the Q1 calls, to something progressively worse over the next 2-3 quarters," Stein said.
Among semiconductor stocks, he expects Nvidia and Monolithic Power Systems to continue to do well fundamentally despite the industry pressures. Stein also has a favorable outlook on Broadcom.
Nvidia stock slipped 0.8% to 162.25 on the stock market today. Monolithic edged down 0.2% to 399.65. Broadcom, meanwhile, ticked up 0.1% to 496.58.
The Philadelphia semiconductor index, known as SOX, is down 34% year to date. The SOX contains the 30 largest semiconductor stocks traded in the U.S. On Thursday, the SOX declined 0.7%.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
