The benchmark PHLX Index (SOX) started the week at 3,028.22, down 5.29% over the previous five sessions.. The SOX is down 23.26% % on a year-to-date basis.
The chip sector continues to suffer from supply and demand issues, and the news hasn’t been getting any better.
Case in point. German automaker Volkswagen (VWAGY) said the demand for chips in cars remain high as supply chain constraints persist and will not improve until 2024.
“Chief Financial Officer Arno Antlitz told German daily Boersen-Zeitung recently that there will not be enough semiconductor chips until 2024 because of the ongoing supply chain bottlenecks from the global pandemic,” TheStreet’s Ellen Chang reported.
The semiconductor sector does see some slivers of light on a dark horizon, but the here and now is a different story. While the supply chain constraints will improve toward the end of 2022 and the production of vehicles will reach 2019 levels in 2023, there are still not enough chips to cope with the increased demand.
“BMW (BMWYY) said the shortage of chips is anticipated to last into 2023,” CEO Oliver Zipse told newspaper Neue Zuercher Zeitung on April 11, Chang noted.
"We are still in the height of the chip shortage," Zipse said. "I expect us to start seeing improvements at the latest next year, but we will still have to deal with a fundamental shortage in 2023."
Meanwhile, TheStreet’s market mavens are kicking the tires on semiconductor stocks this week, with these companies at the top of the list.
Applied Materials AMAT $113.67. 5-day performance (-) 7.39%.
Goldman Sachs is out with a list of promising chip stocks this week and Applied Materials (AMAT) is on it.
The investment bank’s list includes top picks in the industry that are “best positioned to support the future semiconductor ecosystem,” the firm’s analysts wrote in a commentary.
According to TheStreet’s Dan Weil, Goldman analysts said the company benefits from "strong near-term and through-cycle wafer fab equipment fundamentals.”
“Applied’s ability to identify and address customers’ critical technology inflections through its broad product portfolio,” “potential continued margin expansion through growing scale and value-reflective product pricing,” and “sustained … dividends and buybacks.”
Goldman has a 12-month price target of $151 for the stock, which recently traded at $115.22.
Taiwan Semiconductor TSM $98.53. 5-day performance (-2.15%).
Goldman also lists Taiwan Semiconductor (TSM) on its “top semi’s” list, citing potential in “the industry’s underlying structural growth areas, such as 5G/artificial intelligence/high performance computing,” and “TSM’s solid technology leadership and execution,
·Goldman notes that TSM can expect an easing competitive landscape, and faces “sustainable shareholder returns.”
Goldman has a price target of $168 for the stock, which recently traded at $99.15.
TheStreet’s Bruce Kamich is also following Taiwan Semiconductor, noting the company “has been in a sharp decline since the middle of January and that the selloff does not appear to be finished.”
“TSM shares traded sideways for several months before a blow-off rally in December/January,” Kamich said. “The gains were not sustained and prices quickly retreated.”
Kamich’s charts show there was buying interest around $115, but in late February prices gapped below it and continued to decline into March.
“TSM is now testing/breaking the early March low and refreshing the downtrend,” said. “The shares are trading below the declining 50-day moving average line and the declining 200-day moving average line.”
With TSM sellers acting more aggressively than buyers, Kamich is as bullish as Goldman Sachs.
“Unfortunately, we recommended buying the upside strength in TSM in January and we were stopped out as prices quickly reversed direction,” he said. “I don't expect prices to reverse direction and rally.
Nvidia NVDA $212.17. 5-day performance (-) 12.19%.
Nvidia (NVDA) stock has been getting obliterated over the past few weeks, as it's now 25% off the March high. Will it continue lower? TheStreet’s Bret Kenwell offers his insight on one of the chip sector’s flagship companies.
“Nvidia stock has been on a horrid skid, racking up a near-20% decline over the last five days,” Kenwell said. “At one point, Nvidia stock was up more than 3% on April 12, but those gains have since faded. It follows five straight daily losses and a stretch where Nvidia stock declined in nine out of 10 sessions.”
For Nvidia, a downgrade didn’t help matters, but the damage started two weeks ago.
“At last week’s low, Nvidia stock was down about 25% from its high on March 29,” Kenwell said. “It’s been hitting a skid like it hasn’t seen since March 2020 — and that’s saying something.
Kenwell said that investors have already seen AMD break its key support level near $100 and fail to reclaim it. Now, will Nvidia be the next big stock to test its key support zone?
“From the March low to the March high, Nvidia stock rallied 40%,” Kenwell noted. “It was a leader off the low, and joined Tesla TSLA and Apple AAPL as the tech leaders."
However, Nvidia has now broken down below far too many key support levels to be considered a current leader.
“If Nvidia catches a bid, it could open the door to a gap-fill back to $230.62,” Kenwell added. “Above that could put the declining 10-day and still-rising 200-day moving averages in play.”
The problem with Nvidia right now and semiconductor stocks in general is that getting long is akin to catching a falling knife, even as Nvidia is one of the best companies in the market.
“Some investors may find value with the stock near current levels and I won’t argue with their thesis,” Kenwell said. “However, I would kindly point out that larger support sits down at the $206 to $210 area.”
Like $100 was for AMD, the $206 to $210 area has been the support level for Nvidia throughout 2022.
“If it tests it again, bulls will likely look to buy the dip and at least they will have a technical reason for doing so,” Kenwell said. “But again like AMD, there will be questions as to how far it can bounce. “
“On a break of $200, look for a test of the 21-month moving average, currently near $193,” he added. “This measure was the previous support in March 2020 and could play that role again on a further decline.”
