With second-quarter earnings season for semiconductor stocks set to begin Thursday with a report from Taiwan Semiconductor Manufacturing, Wall Street analysts are adjusting their forecasts for chip stocks.
In a note to clients Monday, UBS analyst Timothy Arcuri listed his favorite semiconductor stocks now. He prefers compute and memory-chip companies with exposure to artificial intelligence and data-center segments.
As such, he rates Marvell Technology, Micron Technology and Nvidia as buys. Arcuri also likes semiconductor equipment maker Lam Research and chipmakers Analog Devices and Broadcom.
However, he maintained neutral ratings on chipmakers Advanced Micro Devices and Intel amid declining PC sales. He also is neutral on wireless-chip maker Qualcomm as smartphone sales soften.
Semiconductor Stocks Ready For Downturn
Investors in semiconductor stocks already have priced in a downturn ahead in the chip cycle, Arcuri said.
Most Trusted Financial Companies — Take A Survey And Win A $50 Amazon Gift Card
"Weakening consumer demand/confidence and downstream inventory that has grown to near record highs are driving an accelerated peak in the chip cycle," Arcuri said. "With the probability of an economic 'hard landing' growing and estimate cuts only just beginning, the probability is high that (order) cancellations start to materialize as supply improves. Thus, it feels a bit too early to turn more broadly positive on the sector."
Also Monday, Susquehanna Financial Group analyst Mehdi Hosseini reiterated his positive rating on GlobalFoundries but cut his price target to 75 from 85. In a note to clients, he cited a "looming semiconductor industry inventory correction starting in early 2023 and lasting two to four quarters."
Elsewhere among semiconductor stocks, Barclays analyst Blayne Curtis cut his price targets on AMD and Intel amid forecasts for continued weak PC sales in the second half of 2022. He rates AMD as equal weight, or neutral, with a new price target of 85, down from 115. He rates Intel as underweight with a price target of 40, down from 45.
Marvell Upgraded To Strong Buy
Meanwhile, Piper Sandler analyst Harsh Kumar lowered his price target on Nvidia to 235 from 250 and kept his overweight rating. He cut his sales and earnings estimates for the graphics-chip maker on continued issues in China and Russia, gaming laptop weakness, consumer pressure, and concerns about cryptocurrency mining.
On Sunday, Cowen analyst Matthew Ramsay downgraded Qorvo to market perform from outperform. He also cut his price target on Qorvo to 108 from 150. He said Qorvo will be more impacted by a slowdown in smartphone sales than peers Qualcomm and Skyworks Solutions. Ramsay reiterated his outperform ratings on Qualcomm and Skyworks.
Also Sunday, CFRA Research analyst Angelo Zino upgraded Marvell Technology stock to strong buy from buy. But he cut his 12-month target price to 60 from 83.
Zino said the upgrade was partly based on valuation. He also likes Marvell's low exposure to the weakening consumer market.
Semiconductor Stocks Face Estimate Revisions
A big question heading into the second half of the year, according to Jefferies analyst Mark Lipacis, is: When will semiconductor companies begin cutting their estimates?
"Over the past 20 years, semis historically traded down for six months before next-12-months earnings-per-share cuts started, and then bottomed when the cuts hit," Lipacis said in a note to clients Friday.
With semiconductor stocks down 35% this year, the traditional setup for the sector to bottom is in place, he said. Chip stocks won't turn higher until semiconductor companies cut their guidance and analysts follow suit, he said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
