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“Their Visibility is Zero”: 10 Semiconductor Stocks to Watch as Uncertainty Grows

·12 min read

In this article, we will look at the 10 semiconductor stocks to watch as macroeconomic uncertainty grows. If you want to explore more semiconductor stocks that can either gain or lose in the coming months based on industry dynamics, you can also take a look at 5 Semiconductor Stocks to Watch as Uncertainty Grows.

The World Semiconductor Trade Statistics reported that the global semiconductor industry grew at a pace of 26.2% year over year in 2021. WSTS forecasts the global semiconductor market to grow by 13.9% this year and hit $633 billion by the end of 2022. By 2023, the global semiconductor industry is expected to reach $662 billion, growing 4.6% year over year. While this does not look all that bad, demand weakness in consumer-based end markets is an alarming concern for investors. Leading research company Gartner expects consumer PC demand to contract by 13.1% in 2022 and enterprise PC demand to fall by 7.2%. Overall, global demand for personal computing devices, which includes smartphones, tablets, and personal computers, is expected to decline at a rate of 7.6% in 2022.

Stacy Rasgon, senior semiconductor analyst at Bernstein Research, recently appeared on CNBC's Power Lunch where he talked about how the semiconductor industry is showing signs of an inventory glut. Stacy Rasgon noted that consumer end markets such as smartphones, PCs, GPUs, and TVs are relatively weaker than other end markets for semiconductors, and he sees signs of a phantom demand which will not be sustainable in the back half of 2022. According to the analyst, semiconductor companies themselves are unaware of the actual demand in their end markets as "their visibility is zero". Here are some comments from Stacy Rasgon about the semiconductor space:

"Investors are broadly worried about recession fears and everything else and semis do tend to be quite a bit correlated to the economy and GDP growth. Beyond that, I think given the strength we have had over the last couple of years there is real concern about sustainability. People are worried about order patterns in the wake of really long lead times and tight supply. In those environments customers tend to order more than they need, double ordering, you can think about it as stockpiling, that kind of thing. We have been nervous about that in a number of areas. PCs, I think the stuff that Intel and AMD sell, were over shipping by massive amounts last year even when PCs were strong. I've been worried about similar dynamics in automotive, industrials, and some other areas. Now we are starting to see some areas of weakness, primarily in the consumer space. PCs are weak, smartphones are weak, TVs are weak, GPUs and graphics cards are weak. Consumer, inflation, and everything is impacting. Most of the end markets beyond consumer still seem to be broadly holding up, although the same signs around sustainability and potential stockpiling and overordering are still building. Lots of investors are worried that those are some of the next shoes to drop.  It's gonna get very interesting as we move into the back half of the year, as recession fears have maybe crystallized, we see where the broader economy is going,  we see what's going on with inflation and everything else. Investors are in that kind of mindset so that's why the stocks have been weak here...

The consequences as a consumer of holding too much inventory are not that bad. But if you can't ship a $50,000 automobile because you are missing one 50 cent microcontroller, that's a huge problem. So in many cases, customers can be incentivized to order more if it takes them longer and longer to get the parts. The semiconductor companies themselves have no idea and their visibility is zero. I am not blaming them, they just don't know and all they see is order patterns in front of their face..."

The semiconductor industry is among the most highly cyclical sectors. Recession fears have hit semiconductor stocks hard. Some of the biggest names in the industry such as Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and QUALCOMM, Incorporated (NASDAQ:QCOM) have lost over 30% of their value year to date, as of September 2. Record high inflation has pressured the Fed to raise interest rates aggressively. With inflation snatching the purchasing power of the consumer, who is delaying plans to buy new electronic devices and cars, end markets with high exposure to consumers are facing demand weakness.

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Our Methodology

To determine the 10 semiconductor stocks to watch as uncertainty grows, we reviewed companies operating in the space and looked at their respective end markets from where they draw most of their revenue. Along with each stock, we mentioned the latest analyst and investor sentiment around it. We believe analyst and investor sentiment to be critical indicators for determining a stock's prospects. We have ranked our picks in increasing order of the number of hedge funds having stakes in them as of the end of the second quarter.

10 Semiconductor Stocks to Watch as Uncertainty Grows

10. Skyworks Solutions, Inc. (NASDAQ:SWKS)

Number of Hedge Fund Holders: 40

Skyworks Solutions, Inc. (NASDAQ:SWKS) develops semiconductors for use in mobile communications systems and radio frequency applications. The company serves a variety of end markets including aerospace, automotive, broadband, cellular infrastructure, connected home, gaming, industrial, medical, military, smartphone, tablet, and wearable devices. Although Skyworks Solutions, Inc. (NASDAQ:SWKS) has moderate exposure to the consumer-based end markets, the company draws a major chunk of its revenue from computer giant Apple Inc. (NASDAQ:AAPL). In fiscal 2021, Apple Inc. (NASDAQ:AAPL) accounted for over 50% of Skyworks Solutions, Inc.'s (NASDAQ:SWKS) sales.

On August 4, Skyworks Solutions, Inc. (NASDAQ:SWKS) announced earnings for the fiscal third quarter of 2022. The company reported earnings per share of $2.44 and beat estimates by $0.09. The company's revenue for the quarter amounted to $1.23 billion and topped expectations by $7.21 million.

Wall Street is bullish on Skyworks Solutions, Inc. (NASDAQ:SWKS) because of the company's ties to Apple Inc. (NASDAQ:AAPL). On August 5, BMO Capital analyst Ambrish Srivastava raised his price target on Skyworks Solutions, Inc. (NASDAQ:SWKS) to $135 from $120 and maintained an Outperform rating on the shares. The analyst noted that demand for Apple Inc.'s (NASDAQ:AAPL) products has remained strong.

At the close of Q2 2022, 40 hedge funds held stakes in Skyworks Solutions, Inc. (NASDAQ:SWKS). The total value of these stakes amounted to $1.04 billion, up from $781 million in the previous quarter with stakes worth $780.5 million.

As of June 30, Millennium Management owns more than 1.6 million shares of Skyworks Solutions, Inc. (NASDAQ:SWKS) and is the largest shareholder in the company.

9. Texas Instruments Incorporated (NASDAQ:TXN)

Number of Hedge Fund Holders: 55

Texas Instruments Incorporated (NASDAD:TXN)  develops and manufactures semiconductors for use in a variety of end markets including industrial, automotive, personal electronics, communications equipment, enterprise systems, and calculators among others. The company draws the majority of its revenue from industrial and automotive markets. Industrials held a 41% share of Texas Instruments Incorporated's (NASDAQ:TXN) 2021 revenue. The company has slight exposure to consumer-based end markets and can potentially offset margin pressures from demand weakness in the consumer space.

On July 26, Texas Instruments Incorporated (NASDAQ:TXN) announced earnings for the fiscal second quarter of 2022. The company reported earnings per share of $2.52 and beat estimates by $0.37. The company's revenue for the quarter grew 13.80% year over year and amounted to $5.21 billion, outperforming market consensus by $564.65 million. The company said that it sees demand weakness from its personal electronics segment in the back half of 2022, but its other end markets are expected to show robust demand. The company forecasts its third-quarter 2022 EPS to range between $2.23 and $2.51, while analysts expect the company to report an EPS of $2.26 for the quarter.

On July 27, Deutsche Bank analyst Ross Seymore raised his price target on Texas Instruments Incorporated (NASDAQ:TXN) to $165 from $160 and reiterated a Hold rating on the shares. The analyst sees Texas Instruments Incorporated (NASDAQ:TXN) among the leading companies in the semiconductor space.

At the end of Q2 2022, 55 hedge funds were bullish on Texas Instruments Incorporated (NASDAQ:TXN) and held stakes worth $1.62 billion. This is compared to 46 positions in Q1 2022 with stakes worth $1.96 billion.

As of June 30, First Eagle Investment Management is the top shareholder in Texas Instruments Incorporated (NASDAQ:TXN) and has stakes worth $542 million in the company.

Texas Instruments Incorporated (NASDAQ:TXN) may slightly suffer from demand weakness in an economic slowdown. Other stocks that are vulnerable to shifts in spending patterns and consumer demand include Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and QUALCOMM, Incorporated (NASDAQ:QCOM).

8. Analog Devices, Inc. (NASDAQ:ADI)

Number of Hedge Fund Holders: 61

Analog Devices, Inc. (NASDAQ:ADI) develops semiconductors for applications in communications, computer, industrial, military, aerospace, automotive, and high-performance consumer electronics. On August 18, Needham analyst Quinn Bolton downgraded Analog Devices, Inc. (NASDAQ:ADI) to Hold from Buy. The analyst noted that the company reported a growing number of order cancellations during its earnings call for the fiscal third quarter of 2022.

On August 17, Analog Devices, Inc. (NASDAQ:ADI) announced earnings for the fiscal third quarter of 2022. The company reported earnings per share of $2.52 and beat estimates by $0.09. The company's revenue for the quarter amounted to $3.11 billion, up 76.81% year over year, and beat expectations by $52.14 million. The company is expecting fiscal fourth-quarter 2022 revenue to amount to $3.15 billion, above analyst estimates of $3.1 billion.

Wall Street has a mixed view of Analog Devices, Inc. (NASDAQ:ADI). On July 18,  Truist analyst William Stein raised his price target on Analog Devices, Inc. (NASDAQ:ADI) to $209 from $203 and maintained a Buy rating on the shares. The analyst noted Analog Devices, Inc. (NASDAQ:ADI) is relatively less vulnerable to an economic downturn due to its respective end markets and unique portfolio of products.

At the close of Q2 2022, 61 hedge funds were long Analog Devices, Inc. (NASDAQ:ADI) and held stakes worth $4.23 billion. Of those, Egerton Capital Limited was the top shareholder with stakes worth $650 million.

7. Intel Corporation (NASDAQ:INTC)

Number of Hedge Fund Holders: 65

Intel Corporation (NASDAQ:INTC) draws the majority of its revenue from personal computer processors and is therefore highly vulnerable to a slowdown in the PC market. On July 28, the company reported weak earnings for the second quarter of fiscal 2022. The company reported a loss per share of $0.11 and missed estimates by $0.64. The company's revenue fell by 17.3% year over year and amounted to $15.23 billion, short of expectations by $2.60 billion. Revenue from the company's foundry services fell by 54% year over year in the quarter. The company's leadership slashed its revenue guidance for fiscal 2022 and reported that it expects revenue to fall by 13% year over year to $65 billion. Intel Corporation (NASDAQ:INTC) also reported that its customers are not placing orders as they have excess inventory from previous stockpiling.

On July 29, Wedbush analyst Matt Bryson slashed his price target on Intel Corporation (NASDAQ:INTC) to $35 from $44 and reiterated an Underperform rating on the shares.

At the end of the second quarter of 2022, 65 hedge funds were long Intel Corporation (NASDAQ:INTC) and held stakes worth $2.53 billion. This is compared to 76 positions in the previous quarter with stakes worth $3.15 billion. The hedge fund sentiment for the stock is negative.

As of June 30, Generation Investment Management is the top shareholder in Intel Corporation (NASDAQ:INTC) with stakes worth $552.5 million.

Baron Funds mentioned Intel Corporation (NASDAQ:INTC) and several others in its first-quarter 2022 investor letter. Here is what the asset management firm had to say:

Intel’s (NASDAQ:INTC) capital spending process is guided by a process they appropriately named “copy exactly.” This means that they attempt to “copy exactly” what they have already built and attempt to improve tried and true processes iteratively.”

Like Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and QUALCOMM, Incorporated (NASDAQ:QCOM), Intel Corporation (NASDAQ:INTC) is taking a beating in 2022 and has lost 41.06% year to date as of September 2.

6. Broadcom Inc. (NASDAQ:AVGO)

Number of Hedge Fund Holders: 66

Broadcom Inc. (NASDAQ:AVGO) designs and develops semiconductors for use in digital and mixed-signal devices. The company operates through two segments: Semiconductor Solutions and Infrastructure Software. One of Broadcom Inc.'s (NASDAQ:AVGO) largest customers is Apple Inc. (NASDAQ:AAPL). Broadcom Inc. (NASDAQ:AVGO) and Apple Inc. (NASDAQ:AAPL) have a supply agreement till 2023, and demand for Apple Inc. (NASDAQ:AAPL) products has not signaled weakness. Broadcom Inc. (NASDAQ:AVGO) also develops industry-leading enterprise software solutions. Broadcom Inc.'s (NASDAQ:AVGO) diverse revenue streams and relatively less exposure to consumer-focused end markets make it less vulnerable to demand weakness in the consumer space.

On September 1, Broadcom Inc. (NASDAQ:AVGO) announced market-beating earnings for the third quarter of fiscal 2022. The company reported earnings per share of $9.73 and beat estimates by $0.18. The company's revenue for the quarter amounted to $8.46 billion, up 24.87% year over year, and beat expectations by $57.49 million. The company's revenue view for fiscal Q4 2022 sits at $8.9 billion, ahead of Wall Street expectations of $8.73 billion.

On September 2, Mizuho analyst Vijay Rakesh maintained his $725 price target and Buy rating on Broadcom Inc. (NASDAQ:AVGO). The analyst noted that Broadcom Inc. (NASDAQ:AVGO) continues to experience solid demand for its data center offerings, has strong backlogs, and has reported strong demand across all of its end markets.

At the end of Q2 2022, 66 hedge funds were bullish on Broadcom Inc. (NASDAQ:AVGO) and held stakes worth $4.03 billion. Of those, Fisher Asset Management was the leading shareholder with stakes worth $716 million.

 

Click to continue reading and see 5 Semiconductor Stocks to Watch as Uncertainty Grows.

 

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Disclosure. None. "Their Visibility is Zero”: 10 Semiconductor Stocks to Watch as Uncertainty Grows is originally published on Insider Monkey.