Even a Wall Street analyst who is skeptical of chip stocks has been surprised by the level of decline in the sector this year. Harsh Kumar, an analyst at Piper Sandler, said on Tuesday that broad-based sales are now offering attractive shopping opportunities.
“We are somewhat surprised by the sharp fall in semiconductor stocks,” he wrote. “We have been moving towards a more positive position in semiconductor stocks following our more cautious outlook since the beginning of the year.”
iShares Semiconductor ETF
(Ticker: SOXX), which tracks the performance of the ICE Semiconductor Index, fell 26% as of Monday, compared with a 16% decline.
Analysts say the current valuation of semiconductor stocks already reflects the possibility that Wall Street will lower its forecast for earnings later this year. And he noted that as a group, companies in the sector are dealing with a price / earnings ratio that is the lowest in almost 10 years.
Chip companies could perform better as China emerges from its Covid-19 lockdown and the supply chain for semiconductor production expands, he said. “While we also provide other situations that show a worse side for semiconductor names, we expect this cycle to be more normal than recent shocks to the system,” he wrote.
Still, Kumar says investors should be prudent about which stocks to buy. Chip companies exposed to corporate spending will survive the recession, he said.
As a result, he reiterated his overweight rating
Small instruments of the future
) As its top chip-stock concept in the current environment.
They are prospering as they sell resilient enterprise data-center markets. Earlier this month, AMD said revenue from its EPYC server-processor business more than doubled in the March quarter.
Also exposed to the automotive and industrial segments, where demand has been better than other areas.
Qualcomm in a special case. The company, maker of mobile processors and 5G wireless chips, posted strong earnings last month. Although the level of consumer demand poses a risk to its mobile phone business, Kumar believes the market is underestimating Qualcomm’s success as a chip provider for the Internet of Things and automobiles.
Enter Tae Kim at [email protected]