A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber ? You can register here.
Semiconductors are in everything. Our phones, our laptops, our televisions. Even our cars. But worries about a global recession and lingering worries about supply shortages stemming from persistent pandemic-related shutdowns in Asia over the past two years are hurting major chip companies.
Shares of Intel (INTC) are down more than 45% this year, making it the biggest dog in the Dow Jones. Intel (INTC) is struggling despite high-profile plans to build more factories in the United States and hire more at home. President Biden even just visited the new Intel (INTC) facility in Ohio for his groundbreaking ceremony.
To be fair, Intel isn’t the only chip company going through a tough time this year.
Shares of semiconductor rivals Nvidia (NVDA) and AMD (AMD) both fell more than 50%. Supply chain issues and fears of a rapid economic slowdown are weighing on the entire sector. The benchmark Philadelphia Semiconductor Index (SOX), or SOX as it is known on Wall Street, is down nearly 40% in 2022.
But Intel has been lagging behind for longer. Shares are now trading at their lowest level since May 2016. The stock is down more than 25% in the past five years as the SOX more than doubled, Nvidia is up nearly 200% and AMD has increased by more than 400%.
Can new CEO Pat Gelsinger (he took over in 2021) topple Intel? Investors could give Gelsinger more time to get the company back on track.
How long is unclear though. Gelsinger’s predecessor, Bob Swan, was CEO for just over two years. Swan took over from Brian Krzanich, who resigned in 2018 after disclosing a “‘past consensual relationship’ with an Intel employee.
A fund manager who owns the stock believes Gelsinger will be able to restore Intel to its former glory. But he said it would take time and investors didn’t need to rush into the stock just yet.
“I don’t think there’s a sense of urgency to buy. But longer term, I think Intel will right the ship,” said Jeff Travis, portfolio manager of Oak Associates Funds. Travis owns Intel in the Red Oak Technology Select fund.
Travis thinks semiconductor stocks are still a good “secular growth industry” and valuations are now attractive given the sharp fall in stocks.
He said chip equipment companies KLA and Kulicke and Soffa (KLIC), which sell products to major semiconductor makers, and Ambarella (AMBA), whose video processing chips are used in cars, are the first choices.
So is the worst over for these and other semiconductor companies? Goldman Sachs analysts don’t think so. They cut their revenue and earnings estimates on Friday for memory chip leaders Micron (MU), which will report earnings on Thursday, and Western Digital (WDC).
“There have been a series of negative industry data points,” analysts noted, pointing to cautious comments about demand from Intel, AMD and Nvidia in recent weeks. Goldman analysts added that there is “weakness in the PC, enterprise server and smartphone end markets.”
So it may soon be time to call a bottom for the major chip companies.
September is historically the worst month for the stock market. This month of September is no exception.
The Dow Jones has plunged more than 6% so far this month and is not far from a 52-week low. This follows a drop of more than 4% in August. The S&P 500 and Nasdaq fared even worse, falling 7% and 8% respectively.
Could the market rebound in October? Admittedly, the month that ends with Halloween has a bad reputation for being scary for traders. Wall Street experienced historic plunges in October. Think of 1929, 1987 and 2008 for example.
But these massive October sales are actually anomalies. Stocks often benefit from strong year-end gains as investors bet on healthy earnings growth and strong consumer spending over the holidays.
Retail sales have been rising lately, boosted by a sharp drop in gasoline and oil prices, helping to put more money in consumers’ pockets. It is therefore hoped that Americans will continue to shop, especially since the labor market also remains solid. This should boost corporate earnings.
Still, turmoil in global markets, including inflation, is causing blue chip companies like FedEx (FDX) to issue earnings and economic warnings.
Most major companies will release their Q3 earnings in October…and that means they can also give an updated Q4 outlook and give a first look at what they expect for sales and earnings in 2023 .
Analysts have already cut their third-quarter forecasts significantly in recent weeks. According to FactSet data, Wall Street now expects earnings growth of just 3.2% for the third quarter.
If they are to start slashing estimates for the end of this year and next year as well, that could drive stocks down even further.
“There is more downside risk for US equities,” said Luke Tilley, chief economist and head of asset allocation and quantitative services for Wilmington Trust Investment Advisors.
Monday: GDP of Germany
Tuesday: Durable orders in the United States; US consumer confidence; sales of new homes in the United States; revenues from Jabil (JBL), United Natural Foods (UNFI) and Blackberry (BB)
Wednesday: US Pending Home Sales; revenue from Cintas (CTAS) and Paychex (PAYX)
Thursday: US GDP (third estimate for Q2); US weekly jobless claims: Porsche IPO; revenues from CarMax (KMX), Rite Aid (RAD), Bed Bath & Beyond (BBBY), Nike (NKE) and Micron
Friday: End of the third trimester; US PCE inflation; personal income and expenses in the United States; consumer sentiment in the U. from Michigan to the United States; China PMI; Decision on interest rates in India; Evergrande income
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