Semiconductor stocks have retreated sharply in the year-to-date period. The iShares Semiconductor ETF (NASDAQ:SOXX), considered a proxy of the industry, has shed 25% year-to-period. This is steeper than the 20% drop for the Invesco QQQ Trust (NASDAQ:QQQ) and 12% decline for the SPDR S&P 500 ETF Trust (NYSE:SPY).
What’s ailing semiconductor stocks? The macroeconomic uncertainty and geopolitical tensions have dented consumer confidence and their willingness to purchase. U.S. consumer sentiment, as measured by the University of Michigan consumer sentiment index, fell to the lowest level in over 10 years in March before recovering slightly in April.
This is weighing down on the demand outlook for chip industry’s consumer-facing end markets such as smartphones.
On the supply side, companies are pressured by component shortages that have disrupted production plans. Then there is the input cost inflation these firms have to contend with.
But analysts are optimistic. As recently as this week, market research firm Gartner upwardly revised its semiconductor industry revenue forecast for 2022 by $37 billion to $676 billion. This represented a 13.6% year-over-year increase, coming on top of the 26.3% growth in 2021.
Micron (MU)
Micron (NASDAQ:MU) will likely benefit from strong demand for memory chips, which are integrated circuits that can store data. These are used in a variety of applications. The company sells a variety of memory and storage solutions.
Micron’s second-quarter results, released in late March, underline the fundamental soundness of the company. Both top- and bottom-line comfortably beat expectations. On the earnings call, chief financial officer David Zinsner said DRAM prices have begun to strengthen and the NAND market is stabilizing. That said, the executive expects supply constraints to limit the company’s ability to serve potential upside to demand.
All the same, the company said improving market conditions and its significantly strong competitive position have set it up for stellar financial results in the second half of the calendar year 2022.
The average analysts’ price target of $115.94 for Micron stock suggests there is scope for about 67% upside.
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