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Citi warns chip stocks have yet to bottom

Yahoo Finance Live anchors discuss Bernstein maintaining its Sell rating on Intel and Citi’s warning on chip stocks.

Video Transcript

[AUDIO LOGO]

[MUSIC PLAYING]

BRAD SMITH: You hear the music. You know what time it is. Get your dancing shoes ready. Some calls of the day Brian Sozzi and I are keeping our eye on. Let's start things off here with Intel-- ticker symbol INTC. The stock is down by about one and a half percent after Bernstein analyst Stacy Rascon maintained a sell rating on the stock and then reiterated the $30 price target here.

And for Intel, it has been a tough road with regard to how much money is going out the door right now. And they're investing--

BRIAN SOZZI: You look at it--

BRAD SMITH: You're rolling your eyes here.

BRIAN SOZZI: It's tough, because you just don't see a positive catalyst over the next two quarters for Intel. Maybe the next quarterly report is a little bit better than the shocking one they just reported, but in terms of strong growth in the top and bottom line, unclear. The only catalyst, I would say, going into the year, is that spin-off of Mobileye.

Now, we talked to Intel CEO Pat Gelsinger a couple of months-- a couple of weeks ago when they reported earnings. That spin-off looks to still be on track. That is a good thing-- should fit resources inside Intel, but other than that, they're a company operating in a challenging market, and they're also trying to reposition their business for the future and to your point, spending billions of dollars to do it.

BRAD SMITH: Across the board, PC total addressable market-- TAM if you will, out there at home-- that's continuing to decelerate, or at least decline here. And so with that in mind, Intel certainly going to be one of those companies impacted. And it's no surprise that we're seeing yet another sell rating here racked up.

BRIAN SOZZI: Yeah, well let's stay on chip stocks here. Also watching other semiconductors in the industry more broadly. Citi is warning that chip stocks have yet to hit the bottom, even as the industry faces the worst downturn it has seen in decades. And also Citi reiterating seeing the benchmark index for chip stocks falling another 25%.

And that benchmark, I should note, is the SOX index. You can see the ETF of that index on the screen right now. Now, they do have a top pick. Top pick for Citi inside the semiconductor industry is Analog Devices. They like that stock. They do like Micron AMD and GlobalFoundries longer term, but for right now, the Citi team, Christopher Danley, which I'll say again, he does some of the best work on the chip space.

He's looking for a pretty severe downturn going into next year. Maybe not many catalysts for next year, in large part because of the great PC hangover from the pandemic.

BRAD SMITH: We've got a lot of conferences that are about to start coming up, especially in the chip space, and for semiconductors, you could see a lot of movement on these names, whether that is Analog Devices, whether that's AMD, and even what we were talking about last week, with NVIDIA and some of the announcements that are set to come that really attack not just the data center business, which we know has grown so much.

And all of the semiconductor space really going to be laser-focused on how they can retain that share-- that market share, but also that revenue base that they've built up because of that spending in the data center that's accelerated over these most recent quarters, but then also on that gaming front as well. And so that is something to keep in mind, once we get into this conference season, if you will-- major announcements for the semiconductor space.

BRIAN SOZZI: Absolutely. And lastly, Citi also calling out potential order cancelations in the auto and industrial market as a particular headwind for the team over there at Micron.