The semiconductor industry is dealing with a demand crisis due to a sharp decline in consumer spending. In addition to the economic uncertainty caused by the aggressive interest rate hikes, the semiconductor industry has been caught in the crossfire of geopolitics. Hence, let us discuss what might lead to poor fortunes for semiconductor stocks Nvidia (NVDA), Advanced Micro Devices (AMD), and Marvell (MRVL). Read on….
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While the Biden administration passed a long-awaited law on August 9 to provide $52.70 billion in subsidies for boosting nationwide semiconductor production and research, demand for PCs and other electronics has slumped lately. International Data Corporation (IDC) has forecasted worldwide shipment of PCs and Tablets to decline in 2022 and 2023 due to high inflation and fears of economic slowdown.
According to Gartner Inc.’s (IT) forecast dated July 27, 2022, global semiconductor revenue is expected to grow 7.4% in 2022, down from the prior-year growth of 26.3%. Also, this is down from the previous forecast of 13.6% growth for 2022.
The major manufacturers are currently dealing with excess semiconductor inventory and are forced to reconsider their capital expenditure plans. Adding to the woes, the semiconductor industry seems to be getting caught in the geopolitical crossfire. Earlier this month, the U.S. government blocked two major firms from exporting their advanced chips to China to prevent the potential risk of military applications.
The bearish sentiment surrounding the industry is evident from the iShares Semiconductor ETF’s (SOXX) 34.8% decline year-to-date and a 13.4% slump over the past month.
So, it could be wise to avoid battered and bruised semiconductor stocks NVIDIA Corporation (NVDA), Advanced Micro Devices, Inc. (AMD), and Marvell Technology, Inc. (MRVL) as they buckle up to endure further pain ahead.
NVIDIA Corporation (NVDA)
NVDA is the global provider of graphics, computation, and networking solutions. The company operates through two segments: Graphics and Compute & Networking.
Earlier this month, the White House blocked NVDA from exporting high-end graphics chips to China. This action was driven by security concerns arising from China’s possible military use of the technology. The company said the ban impacted $400m in potential sales to China.
For the second quarter of fiscal 2023 ended July 31, 2022, NVDA’s non-GAAP gross profit decreased 29.1% year-over-year to $3.07 billion, while non-GAAP income from operations came in at $1.33 billion, indicating 56.9% decline from the previous-year quarter.
In addition, NVDA’s non-GAAP net income for the quarter declined 50.7% year-over-year to $1.29 billion. This led to the company reporting a non-GAAP net income per share of $0.51 for the quarter, registering a 51% decline over the previous-year period.
Analysts estimate NVDA’s EPS and revenue for the fiscal 2023 third quarter (ending October 2022) to come in at $0.72 and $5.90 billion, translating 38.5% and 17% year-over-year declines, respectively.
The stock has plummeted 35.8% over the past six months and 38.5% over the past year to close the last trading session at $137.14.
NVDA’s bleak outlook is also reflected in its POWR Ratings. NVDA has a D grade for Growth, Value, and Stability in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NVDA is ranked #78 out of 94 stocks in the Semiconductor & Wireless Chip industry.
Click here to access the additional POWR Ratings for NVDA (Momentum, Sentiment, and Quality).
Advanced Micro Devices, Inc. (AMD)
AMD operates as a global semiconductor company. The company’s two segments are computing 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 disclosed instructions from U.S. Officials to stop exporting its top artificial intelligence chip to China. This prohibition may potentially impact its sales in China.
AMD’s operating expenses increased 150.8% year-over-year to $2.51 billion for the fiscal 2022 second quarter ended June 25, 2022. Its operating income was $526 million, down 36.7% year-over-year. Also, its net income came in at $447 million, down 37% year-over-year, while its EPS decreased 53.4% year-over-year to $0.27 during the same period.
As of June 25, 2022, AMD’s long-term debt stood at $2.46 billion, compared to $1 million as of December 31, 2021. A significant increase in expenses incurred by the company for servicing this debt is expected due to rising interest rates.
The stock has plunged 22.7% over the past six months and 27.1% over the past year to close the last trading session at $79.61
AMD’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell in our proprietary rating system. Also, the stock has a D grade for Stability. AMD is ranked #86 out of 94 stocks in the Semiconductor & Wireless Chip industry.
Click here to access the additional POWR Ratings for AMD (Growth, Value, Momentum, Sentiment, and Quality).
Marvell Technology, Inc. (MRVL)
MRVL is engaged in designing, developing, and selling integrated circuits and other infrastructure semiconductor solutions. The company’s offerings cater to five markets: data center carrier infrastructure, enterprise networking, consumer, and automotive/industrial.
MRVL’s operating expenses increased 17% year-over-year to $746.9 million for the fiscal 2023 second quarter ended July 30, 2022. As of July 30, 2022, the company’s total liabilities stood at $6.63 billion, compared to $6.41 billion as of January 29, 2022. In addition, cash outflows from investing and financing activities came in at $129.90 million and $49.50 million, respectively.
MRVL’s shares have slumped 23.6% over the past six months to close the last trading session at $46.76.
MRVL’s bleak prospects are reflected in an overall rating of D, which equates to Sell in our POWR Ratings system. MRVL also has a D grade for Stability, Value, and Quality. MRVL is ranked #82 out of 94 stocks in the same industry.
Click here to access MRVL’s Growth, Sentiment, and Momentum rating.
NVDA shares rose $0.29 (+0.21%) in after-hours trading Thursday. Year-to-date, NVDA has declined -52.40%, versus a -15.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.With a master’s degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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