Semiconductors sold off on Wednesday along with the broader stock market as retailers warned of rising inventory levels as consumer confidence weakens as high inflation rates persist.
Semiconductor stocks have been in a steep decline with the massive shortage in chips globally. The sector faced another tough day with declines of 2% or more for AMD ((AMD)), NVIDIA ((NVDA)), Micron Technologies ((MU)), Qualcomm ((QCOM)), Intel ((INTC)) and Texas Instruments ((TXN)).
The largest decline was NVIDA which dropped by 6.8% on May 18 at the market close and 43.77% in value year-to-date, followed by Qualcomm which fell by 6.6% and lost 29.9% in value year-to-date.
AMD declined by 6.04% and its stock has lost 35.9% in value year-to-date while Intel fell by 4.62% with a year-to-date drop of 20.4%.
Micron stemmed its loss to a 4.61% decline with a year-to-date drop of 25.80%
The smallest decline was Texas Instruments, which only shed 2.67%, falling 10.65% year-to-date.
There is a lack of breadth in the market, said Sam Stovall, chief investment strategist for New York-based CFRA.
"The relief rally off of the May 12 low is experiencing shortness of breadth," he wrote.
Out of the 148 sub-industries in the S&P 1500, only 13% trade above their 10-week (50-day) moving average and only 27% are above their 40-week (200-day) average.
Investors should expect more declines in stocks before the current dip in the market ends. "...implying further downside is necessary before this sell-off has run its course," Stovall wrote.
The industry has faced many challenges with supply chain roadblocks even as demand from consumers had risen. Now the industry is dealing with China’s COVID lockdown, higher inflation rates curbing consumer spending along with the ongoing Russia invasion of Ukraine.
Despite a quarter where the major companies reported earnings that beat the Street's estimates, investing in chip stocks may not be a good opportunity.
Some tech sector analysts said this recent pullback could mirror the selloff that occurred in 2018 when the stocks reached their record highs and increasing prices for chips pushed sales higher. But the demand in chips from customers only resulted in a large glut for the chip makers while their stocks tanked.
The short-term outlook is weak as investors wait for the CEOs of chip makers to estimate when supply will exceed demand so the forecasts can be lowered.
“From an investment perspective, semiconductor stocks are almost uninvestable today,” Evercore ISI analyst C.J. Muse recently wrote in a research note. “Investors want to buy the ‘cut,’ but that ‘cut’ may not happen until 2H22 at the earliest. So we are left guessing whether near-term fundamentals matter (they didn’t for Micron) or whether the market will continue to wait for the coming inventory correction."
The Nasdaq Composite could plummet by 75% from its peak while the S&P 500 could tank 45% from its top, Guggenheim Partners Global Chief Investment Officer Scott Minerd told MarketWatch in an interview.
“That looks a lot like the collapse of the internet bubble,” Minerd said, referring to the downfall of tech stocks in 1999 and early 2000.
GPU maker Nvidia was downgraded to “neutral” after prices for graphics processing units known as GPUs fell by Baird analysts. GPUs are what control gaming machines.
Smartphone Makers Cutting Shipments
Google (GOOGL) told its suppliers the company made over 10 million units in 2022, which is double the amount of 2021 shipments. The internet behemoth unveiled its new Pixel 6A recently and has said it could launch its flagship Pixel 7 series in the fall.
The Nikkei Asia reported that the main smartphone makers in China told their suppliers to cut back on future orders by about 20% due to the COVID lockdowns. China's Oppo, Vivo and Xiaomi are facing weaker consumer confidence and supply chain hindrances and plan to shop fewer smartphones.
Xiaomi, the largest smartphone maker in China, told its suppliers that it will ship a total of 160 million to 180 million units compared to its previous goal of 200 million, sources said. In 2021, Xiaomi shipped 191 million smartphones.
