There was a near-perfect storm of headwinds for chip stocks today, with numerous negative data points. These include analysts issuing a negative note specifically on AMD heading into earnings and another analyst note warning of tepid sales of the new iPhone, which would affect iPhone suppliers Qualcomm and Broadcom.
In addition, semiconductor industry bellwether Texas Instruments (TXN -3.49%) issued fairly negative guidance in its earnings release last night, and California suspended the license for self-driving car company Cruise, owned by General Motors, after an accident. These two data points cast a pall over anything concerning smart vehicles and Internet of Things (IoT) technology, including Qualcomm, among others.
Oh, and long-term Treasury yields were rising again today, adding insult to injury.
Negative sentiment all around the chip sector
In a note issued today, Bank of America tech analysts said AMD was likely to have “muted” upside heading into third-quarter earnings, writing, “We expect AMD to report in line but likely guide Q4 in line to modestly below consensus as it faces headwinds in its embedded (Xilinx) and console (seasonal, product maturity) sales. … However, all eyes will likely be on clues to MI300 AI accelerator ramp for .”
The analysts also noted that AMD is still not particularly cheap, even if it does see sales and earnings recover next year, as the stock trades at 25 times next year’s earnings estimates. That’s actually not far from Nvidia‘s (NVDA -4.32%) forward multiple despite Nvidia having an early and dominant lead in artificial intelligence accelerators.
In another sour note issued today, analysts at UBS released the results from their latest Apple (AAPL -1.35%) iPhone tracker, and the results weren’t great. Tracking the phone’s availability across 30 countries, the analysts noted that wait times for the phone were now “largely nonexistent.”
This is a rather abrupt about-face, as wait times were elevated immediately after launch last month. “The deterioration in wait times at the low-end that are now consistent with last year suggests demand continues to wane with only the Pro Max showing any resiliency,” the UBS analysts wrote.
If iPhone demand were slowing abruptly, it certainly wouldn’t be great for iPhone suppliers, such as Broadcom, which supplies radio frequency chips for the iPhone, or Qualcomm, which still uses Qualcomm’s modems for the iPhone despite Apple trying to rid itself of its dependency.
Qualcomm has been trying to diversify its offerings away from the mature mobile phone market and into both automotive and IoT chips. But those markets also received jolts of negative news today. Sadly, an autonomous vehicle operated by self-driving car company Cruise ran over a woman in California recently, and California has immediately suspended all self-driving permits in the state for the moment.
Even worse for Qualcomm investors, Cruise specifically uses Qualcomm’s system on a chip as the brains behind its autonomous driving system. So, the incident could hurt the credibility of the self-driving industry generally and Qualcomm specifically.
And finally, chip stocks may also be affected today by Texas Instruments’ (TI) earnings last night, as it is one of the larger manufacturers of analog and microcontroller chips that go into a broad range of industrial end devices. Last night, TI released third-quarter results showing a 14% decline in revenue year over year while issuing fourth-quarter guidance that forecasts a high-single-digit quarter-over-quarter decline in the current quarter, even on last quarter’s muted numbers. Given Texas Instruments’ broad reach, that also cast a pall over the entire sector today.
And if that weren’t enough, yields were back on the rise
In addition to all these headwinds, long-term Treasury Bond yields were back on the rise today to 4.953% after two days of declines.
Stocks haven’t reacted well to the rapid rise in Treasury bond yields this summer. Higher yields both depress valuations, especially for growth stocks, and contribute to slowing the economy, likely affecting the cyclical semiconductor industry.
All in all, it was a terrible day for chip stocks. However, long-term investors should take comfort that semiconductors will likely outgrow the economy through this decade. Therefore, the recent turmoil may offer some terrific prices from a long-term perspective, even though the near-term looks quite treacherous.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Billy Duberstein has positions in Apple, Bank of America, Broadcom, and Texas Instruments. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Bank of America, Nvidia, Qualcomm, and Texas Instruments. The Motley Fool recommends Broadcom, General Motors, and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $25 calls on General Motors, and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.