Stay away from battered semiconductor stocks for the time being, according to Citi analyst Chris Danely.
“We believe negative catalysts will now outnumber positive catalysts given upcoming PC data points and monthly Taiwan sales figures,” Danely wrote in a fresh note to clients. “We also expect negative data points in September in broader semis as the correction continues.”
The analyst removed his short-term bullish calls on chip makers NXP Semiconductor and ON Semiconductor. His top pick remains Analog Devices.
The Galaxy Book2 360 exhibited on the Samsung stand at Mobile World Congress (MWC) in Barcelona, on March 1, 2022, in Barcelona, Spain, as slowing PC demand affects chip makers. (Photo by Joan Cros/NurPhoto via Getty Images)
“We continue to believe we are entering the worst semiconductor downturn in at least a decade, and possibly since 2001 given the expectation of a recession and inventory build,” Danely added. “We expect every company in our coverage universe and every end market to experience a correction.”
Danely’s cautious take on chip stocks is not without good reason. Here are four major chip companies that have issued profit and sales warnings in the last two weeks:
Nvidia
Previous Q2 Sales Guidance: $8.10 billion in sales, plus or minus 2%
New Q2 Sales Guidance: $6.7 billion
Previous Q2 Gross Margin Guidance: 67.1%, plus or minus 50 basis points
New Q2 Gross Margin Guidance: 46.1%, plus or minus 50 basis points
Stock Price Year to Date: -39%
Nvidia has only known rapid growth in the past five years, but that appears to have come to a halt in the second quarter as macroeconomic forces grip the surging chip player’s business.
The company shocked investors this week with notable sales and profit warnings, which cast a fresh dark cloud over the beat-up chip sector.
“The shortfall relative to the May revenue outlook of $8.10 billion was primarily attributable to lower sell-in of Gaming products reflecting a reduction in channel partner sales likely due to macroeconomic headwinds,” Nvidia said in a new SEC filing. “In addition to reducing sell-in, the company…
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