As the trading week came to a close, investors were feeling rather downbeat about the semiconductor industry. Many stocks in the sector had been flying high on the great promise of artificial intelligence (AI) boosting their results. However, some sour notes in recent earnings reports from major “chippies” — particularly in the guidance posted by sector king Taiwan Semiconductor Manufacturing (NYSE: TSM) — led to a fairly wide sell-off on Friday.
Taiwan Semi, which fell by over 3%, had plenty of company. Storage chip specialist Micron Technology (NASDAQ: MU) closed the day nearly 5% down, and analog chipmaker Texas Instruments (NASDAQ: TXN) slid by over 2%.
Uncomfortable news from Taiwan
What happens with Taiwan Semi reverberates throughout the chip sector, as the contract manufacturer is the 800-pound gorilla of the industry these days.
On Friday, investors were still digesting the Asian company’s first-quarter earnings release published on Thursday. While revenue rose at double-digit rates and headline net income zoomed almost 9% higher — both topping the consensus analyst estimates, by the way — the company’s guidance was a touch worrying.
Management pointed out that there is weakness in the formerly powerful global smartphone market, a dynamic that threatens to weaken future growth for the industry. Yes, AI is certain to be the rising tide that lifts all boats, but upside is limited if smartphones weigh down those watercraft.
Another not-so-positive development occurred with Super Micro Computer, a semiconductor industry supplier widely expected to be a major beneficiary of the AI revolution. The company has apparently elected not to preannounce its latest quarterly earnings release, which has been something of a habit for it lately. Market players are speculating this is because the figures won’t look so hot.
Given the trailing growth posted by many chip companies and the feverish adoption of AI, more than a few analysts are expecting improvements to Supermicro’s fundamentals when it publishes those fiscal second-quarter numbers.
Smartphones — not a shocker
The world is still in the grip of AI fever, so ultimately the technology will keep the growth engine running for the better semiconductor companies helping to power it.
Also, while smartphones remain go-to items for much of the world, it’s not surprising that they’re no longer sources of hot growth. Improvements to their functionalities tend to be incremental these days, and users are hanging on to models longer before upgrading. It’s not as if that segment is in any kind of free fall, or that this is a shocking development. This is likely one reason why that drop in semiconductor stocks Friday wasn’t more drastic.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $518,784!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 15, 2024
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing and Texas Instruments. The Motley Fool has a disclosure policy.
Why Semiconductor Stocks Were Smacked Down Today was originally published by The Motley Fool
Source: finance.yahoo.com