Losses in semiconductor stocks are outpacing losses in the broader technology sector. After rallying in July with the rest of technology stocks, semiconductor stocks are falling again amid a steady stream of warnings about slumping demand.
The Philadelphia semiconductor index ($SOX) tumbled almost 10% in August, about twice the loss of the Nasdaq 100 Index ($IUXX) (QQQ). With the Fed showing no signs of letting up on aggressively tightening monetary policy, many analysts are predicting more pain ahead for chip stocks. Citigroup said this week that they expect another 25% decline for the semiconductor index, with slowing demand spreading from personal computers to cars and industrial products.
U.S. Global Investors said, “we may not see a turn in the cycle until the Fed starts reducing rates or at least keeps them steady.” The Philadelphia semiconductor index is down 34% from its record-high close on December 27, with 29 of the index’s 30 stocks falling in that time. Nvidia (NVDA) is the worst performer, losing more than half its value. Conversely, Wolfspeed (WOLF) is the only stock in the index to gain, holding on to an advance of a fraction of 1%.
The latest stock to sound an alarm was Seagate Technology Holdings Plc (STX), the biggest maker of computer hard drives. The company on Wednesday cut its revenue forecast for the current quarter, citing deteriorating economic trends and “cautious buying behavior” from businesses worldwide and cloud customers in the U.S. Also, Dell Technologies (DELL) last week gave a pessimistic outlook for the second half of this year, warning of “more cautious customer behavior.”
Analysts continue to slash profit estimates for semiconductor stocks. Projections for 2023 earnings growth for semiconductor-related companies in the S&P 500 Index ($SPX) (SPY) have fallen 10 percentage points since January, compared with a roughly 6-point decline for the broader tech sector. However, valuations are nearing levels that have historically represented good buying opportunities. According to data from Bloomberg, the semiconductor index is priced at 15 times projected profits, below the average valuation over the past ten years. Micron Technology (MU) and Qualcomm (QCOM) are among the cheapest, trading at about 10 times projected profits.
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