As concerns over the prospect of a recession and slowing consumer demand have hit semiconductor stocks, which have rocked semiconductor stocks so far this year, Citigroup analysts believe the trend will get worse before it gets better.
Analyst Christopher Danely expects semiconductor stocks to fall by at least another 15% for the rest of the year as Wall Street analysts lower their profit forecasts during the earnings season.
“We believe this will be the worst recession in the semiconductor industry in at least 10 years because it hasn’t seen these three things — overvaluation, overstocking, and the economy,” Danely wrote in a Wednesday research note. decline.”
Semiconductor stocks with high exposure to the PC and mobile phone markets, such as Intel (INTC-US) and AMD (AMD-US), will be particularly vulnerable. Bloom estimates that PC sales will drop by 9% this year, and the overall smartphone market will also decline by about 9%.
Personal computers and cell phones account for about 50 percent of all semiconductor demand, Danely said.
Intel declined to comment, while AMD said it did not comment on analyst reports.
The already worrisome slowdown in consumer demand, combined with excess inventory, could be a catastrophic shock for chipmakers, Danely wrote.
In response to supply chain problems and labor shortages, many companies previously stockpiled large amounts of inventory, but now demand has slowed and companies have had to cut prices to clear these stocks.
While Danely has a negative view on the industry as a whole, he thinks there are still some defensive stocks out there. He favors companies with rising profits and earnings per share (EPS), such as Micron (MU-US), ON Semiconductor (ON-US), GlobalFoundries (GFS -US), and AMD (AMD-US), and his top pick It is Analog Devices (ADI-US).
“We expect ADI’s EPS to be more sustainable than its peers, given the cost and revenue synergies from the Maxim acquisition,” he wrote.
Analog Devices, which completed its acquisition of rival Maxim Integrated last year, is down 15 percent so far this year.
Most U.S. chip stocks traded lower on Wednesday after the latest consumer price index (CPI) came in above expectations. CPI rose at an annualized rate of 9.1 percent in June, boosting expectations that the Federal Reserve will announce another sharp rate hike later this month, prompting investors to flee high-growth technology stocks.
