Sharp selloffs in January have made some notable chip companies more attractive investments.
Even with recent rallies, the benchmark PHLX Index SOX is down around 12% on a year-to-data basis.
With the semiconductor sector in a slump, talk continues to focus on the tight supply of microchips, with no firm end in sight.
The crisis is so acute, Market mavens are using historical comparisons that few would have taken seriously three years ago.
“In the wake of the 1970s oil crisis, the U.S. established the Strategic Petroleum Reserve, making it official U.S. policy to stockpile billions of barrels of petroleum to end reliance on foreign producers for the literal gas that ran America’s engine,” said TheStreet’s M. Corey Goldman.
“Fast forward 50 years, and that “gas” is now semiconductors.”
According to Goldman, the median supply of chips held by manufacturers has dropped from 40 days’ worth in 2019 to less than five days’ worth last year, according to the eye-popping request for information report, with inventories even smaller in “key industries.”
“The semiconductor supply chain remains fragile,” the report said. “Demand continues to far outstrip supply.”
Limited supply means that disruptions to production overseas — such as those from weather or new Covid-19 outbreaks — could again lead to factory shutdowns and furloughed workers in the U.S., according to the report, which also noted that respondents “…did not see the problem going away in the next six months.”
With the chip shortage vexing the economy and the markets, here are the semiconductor stocks making news this week.
INTEL
Chipmaker Intel Corp. (INTC) – Get Intel Corporation Report. Back in early December, TheStreet’s Bruce Kamich said “The charts of INTC are mixed. Yes the spin-off of Mobileye could yield the company billions but the charts are not (yet) strong enough to anticipate a sustained advance.”
Not much has changed in the ensuing eight weeks.
“Intel shares managed to firm up a bit after our Dec. 8 review, but the rally fizzled out around the declining 200-day moving average line,” Kamich said last week. “INTC pulled back to trade under the 50-day moving average line again.”
In recent weeks, sellers have been more aggressive with INTC and share prices haven’t been able to sustain gains above the declining 40-week moving average line.
“According to our charts, there’s a potential downside price target in the $45-$44 area. Right now, we can see an upside price target around $65, but a trade at $48.06 is likely to weaken the picture,” Kamich said.
Nvidia
Nvidia (NVDA) – Get NVIDIA Corporation Report TheStreet’s Bret Kenwell says that Nvidia stock is getting into potential bargain territory, down almost 40% from the highs.
‘With Nvidia, we’re talking about a stock that was hitting new all-time highs in November, but is now down almost 40% from the highs,” Kenwell said in TheStreet.com last week.
In trading activity last week, Nvidia shares were down 38.5% against year-long highs, giving bulls the first test of the 200-day moving average since March 2021. “If Nvidia can’t find its footing around the 200-day moving average (having already cut below the weekly VWAP measure), there is another layer of support just below current levels,” Kenwell said.
Specifically, Kenwell said he’s watching the 50-week moving average currently near $208, followed by the fourth-quarter low at $195.55.
It’s also possible for Nvidia stock to fully break down and trade significantly lower.
“If the stock market goes into a full-blown roaring bear market, then Nvidia is going lower,” Kenwell said. “There’s no other way to look at it.”
“However, for those that have been itching for a position in this name and felt like they missed Nvidia stock a few months ago, here’s an opportunity,” he added. “Shares are down between 38% and 44% and into some notable areas of potential support, offering longer-term bulls a chance to nibble.”
Apple
Apple (AAPL) – Get Apple Inc. Report While Apple isn’t a semiconductor stock, its share performance certainly is heavily impacted by the ongoing microchip shortage.
One Apple product that’s specifically struggling due to the chip crisis is the venerable Apple iPad.
“Apple shares were up by more than 5% in trading last week, yet one of its products is faring significantly less well: iPad sales are down 14% to $7.25 billion,” reported TheStreet’s Veronika Bondarenko. “With $123.9 billion in revenues, an all-time record, in the first fiscal quarter of 2022, Apple beat analyst expectations of $118.3 billion.”
The touchscreen tablet that Apple first launched in 2010 not only brought in the least sales but was also the only major product to fall below analyst expectations, which had been set at $8.8 billion – iPhone sales brought in $71.6 billion while Mac sales were at $10.85 billion.
So why aren’t consumers buying iPads?
“The iPad comes with a long history of being the underdog — when Apple first introduced the product in 2010, its name was met with widespread ridicule online,” Bondarenko said. “Too heavy to constantly carry around like an iPhone and too small to fully replace a Macbook or other work computer, it is often considered a secondary or “nice-to-have” purchase.”
Now, the microchip issue is adding to iPad woes. In the recent earnings call, Apple’s CEO Tim Cook named “supply chain constraints” that gripped all of tech and retail during the pandemic as the year’s biggest challenge.
“The issue with iPad [is that there] was a very significant constraint in the December quarter […] on these legacy nodes that I had talked about,” Cook said, referring to the processing chips that are necessary for things like screen display.
Yet as the iPad is far from the only Apple device to require legacy nodes, the current numbers could be a result of the company prioritizing production of already more-popular products. “In November, the Nikkei business newspaper claimed Apple was making around 50% fewer iPads than usual in order to preserve chips for the new iPhone 13,” Bondarenko noted.
While supply chain shortages cost Apple more than $6 billion in lost sales, Cook is optimistic that the situation is already improving.
“We’re not guiding by product and constrained by product level,” Cook said. “But overall, we do see an improvement in the March quarter in terms of the constraints going down, versus what they were in the December quarter.”
