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Semiconductor Stocks In For Volatile Earnings Season

Supply-chain issues are weighing on semiconductor stocks as the chip industry heads into the third-quarter earnings season. Those issues also will muddy the outlook as Wall Street tries to predict the eventual end to the current upcycle.




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Factory shutdowns stemming from the Covid-19 pandemic in Southeast Asia have impacted back-end testing and assembly for semiconductor products, Evercore ISI analyst C.J. Muse said in a note to clients on Tuesday.

Also, power outages in China are weighing on the ability of tech companies to procure components for final assembly, he said.

“Add in a potential China slowdown and rising fears around double-ordering, and we believe that this earnings season will be highly volatile,” Muse said. “So, likely a choppy road ahead with little conviction one way or the other.”

Analysts Name Top Picks In Semiconductor Stocks

Because of the supply-chain interruptions, the third-quarter earnings season is unlikely to offer a clear picture on the semiconductor cycle, he said. The shortages and shutdowns will limit upside for semiconductor stocks this season, Muse said.

However, Muse believes the current chip cycle has legs at least into the second half of 2022.

Among semiconductor stocks, his top picks are Analog Devices (ADI), Marvell Technology (MRVL) and Nvidia (NVDA). In semiconductor equipment stocks, he favors ASML (ASML) and Teradyne (TER).

On Monday, Raymond James analyst Chris Caso named Analog Devices and Microchip Technology (MCHP) as his favorite semiconductor stocks ahead of third-quarter earnings season.

End Market Demand Remains Strong

Demand in the analog semiconductor segment “remains very strong and is outstripping the industry’s ability to supply,” Caso said in a note to clients.

The supply shortages should prevent customers from building the inventory that usually accompanies a cyclical downturn, he said.

Also, analog semiconductor firms are likely to pass along wafer price increases by raising prices on their end products, he said. That should drive higher revenue and earnings, but gross margins should remain stable, he said.

On Friday, investment bank Cowen revealed its top picks among semiconductor stocks.

Analyst Matthew Ramsay reiterated his buy ratings on Advanced Micro Devices (AMD), Qualcomm (QCOM) and STMicroelectronics (STM).

Cowen analyst Karl Ackerman said his top picks are Semtech (SMTC), Macom Technology Solutions (MTSI) and Qorvo (QRVO).

Fueling the semiconductor industry now are rebounds in the automotive and industrial segments, Cowen analysts said. Other areas of strength have been personal computers, data centers and 5G wireless, they said.

Micron Stock Dips On Negative Forecast

Elsewhere among semiconductor stocks, Micron Technology (MU) shares fell Tuesday amid renewed concerns about memory-chip price declines.

Research firm TrendForce predicted Tuesday that DRAM memory chip prices will enter a period of downswing in 2022 as demand lags supply. DRAM prices will begin to decline in the fourth quarter, the firm forecast. TrendForce first raised concerns about rising inventories in the DRAM market in early August.

On the stock market today, Micron stock fell 3.6% to close at 66.72.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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