The semiconductor industry is facing a demand crisis due to a sharp decline in consumer spending. In addition to the economic uncertainty caused by the aggressive rate hikes, the semiconductor industry is caught in the crossfire of geopolitics. So let’s discuss what could lead to bad fortunes for semiconductor stocks Nvidia (NVDA), Advanced Micro Devices (AMD) and Marvell (MRVL). Read more….
While the Biden administration passed a long-awaited law on Aug Providing $52.70 Billion in Grants To boost the nationwide production and research of semiconductors, the demand for PCs and other electronics has been declining lately. International Data Corporation (IDC) has predicted: worldwide shipping of PCs and tablets is refused in 2022 and 2023 due to high inflation and fears of economic slowdown.
According to Gartner Inc.’s (THE) forecast of July 27, 2022, the global semiconductor sales are expected to grow by 7.4% in 2022, lower than last year’s growth of 26.3%. This is also lower than the earlier forecast of 13.6% growth for 2022.
The major manufacturers are currently dealing with: excess semiconductor inventory and are forced to rethink their investment plans. In addition to the woes, the semiconductor industry seems to be getting caught up in the geopolitical crossfire. Earlier this month, the US government blocked two large companies not to export their advanced chips to China to avoid the potential risk of military applications.
Bearish sentiment around the sector is reflected in the iShares Semiconductor ETFs (SOXX) 34.8% decline year-to-date and a 13.4% decline in the past month.
So it may be wise to buy battered and bruised semiconductor stock NVIDIA Corporation (NVDA), Advanced Micro Devices, Inc. (AMD), and Marvell Technology, Inc. (MRVL) while clinging to endure further pain.
NVIDIA Corporation (NVDA)
NVDA is the global provider of graphics, computing and networking solutions. The company operates through two segments: Graphics and Compute & Networking.
Earlier this month, the White House Blocked NVDA of exporting high-end graphics chips to China. This move was prompted by security concerns arising from China’s possible military use of the technology. The company said the ban impacted $400 million in potential sales to China.
For the second quarter of fiscal 2023 ended July 31, 2022, NVDA’s non-GAAP gross profit declined 29.1% year-over-year to $3.07 billion, while non-GAAP operating revenue was $1.33 billion. were down 56.9% from last year’s quarter.
In addition, NVDA’s non-GAAP net income for the quarter declined 50.7% year over year to $1.29 billion. This led the company to report non-GAAP net income per share of $0.51 for the quarter, down 51% from the prior year period.
Analysts estimate NVDA’s earnings per share and revenue for the third quarter of 2023 (ending October 2022) at $0.72 and $5.90 billion, representing 38.5% and 17% year-over-year declines, respectively.
The stock is down 35.8% in the past six months and 38.5% in the past year to close its last trading session at $137.14.
NVDA’s bleak outlook is also reflected in its POWR ratings. NVDA has a D score for growth, value and stability in our proprietary rating system. The POWR Ratings rate stocks on 118 different factors, each with its own weighting.
NVDA is number 78 out of 94 shares in the Semiconductor and wireless chip industry.
Click here to access the additional POWR assessments for NVDA (Momentum, Sentiment and Quality).
Advanced Micro Devices, Inc. (AMD)
AMD operates as a global semiconductor company. The company’s two segments are computers and graphics; and Enterprise, Embedded and Semi-Custom. It serves Original Equipment Manufacturers (OEMs), public cloud service providers, original design manufacturers, system integrators, independent distributors, online retailers, and add-in board manufacturers.
On August 31, AMD announced instructions from US officials to stop exporting its flagship artificial intelligence chip to China. This ban could potentially affect sales in China.
AMD operating expenses increased 150.8% year over year to $2.51 billion for the fiscal second quarter of 2022 ended June 25, 2022. operating income was $526 million, down 36.7% year over year. Net income also came in at $447 million, a 37% year-over-year decline, while EPS declined 53.4% year-over-year to $0.27 over the same period.
As of June 25, 2022, AMD’s long-term debt was $2.46 billion, compared to $1 million as of December 31, 2021. A significant increase in the company’s cost of servicing this debt is expected as a result of rising interest rates.
The stock is down 22.7% in the past six months and 27.1% in the past year to close its last trading session at $79.61.
AMD’s POWR Ratings reflect the poor outlook. It has an overall rating of D, indicating a sale in our proprietary rating system. Also, the stock has a D grade for stability. AMD is ranked 86th out of 94 stocks in the Semiconductor & Wireless Chip industry.
Click here to access AMD’s additional POWR ratings (growth, value, momentum, sentiment, and quality).
Marvell Technology, Inc. (MRVL)
MRVL designs, develops and markets integrated circuits and other semiconductor solutions for infrastructure. The company’s offerings are focused on five markets: data center carrier infrastructure, enterprise networks, consumer and automotive/industrial.
MRVL’s operating expenses increased 17% year-over-year to $746.9 million for the second quarter of 2023 ended July 30, 2022. As of July 30, 2022, the company’s total liabilities were $6.63 billion, compared to $6 .41 billion as of January 29, 2022. In addition, cash outflows from investing and financing activities were $129.90 million and $49.50 million, respectively.
Shares of MRVL are down 23.6% in the past six months to close out the latest trading session at $46.76.
MRVL’s bleak outlook is reflected in an overall rating of D, which is equivalent to Selling in our POWR Ratings system. MRVL also has a D grade for stability, value and quality. MRVL ranks 82 out of 94 stocks in the same industry.
click here to access MRVL’s growth, sentiment and momentum scores.
NVDA shares rose $0.29 (+0.21%) in after-hours trading Thursday. Year-to-date, NVDA is down -52.40%, compared to a -15.08% rise in the benchmark S&P 500 index over the same period.
About the author: Santanu Roy
Fascinated by the traditional and evolving factors influencing investment decisions, Santanu decided to pursue a career as an investment analyst. Before moving to investment research, he was a process officer at Cognizant. With a master’s degree in business administration and a fundamental approach to analyzing companies, he aims to help private investors identify the best long-term investment opportunities.
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