Вештачка интелигенција

Mixed Markets for Semiconductors Amidst the AI Stock Craze

Summary

Despite the frenzy surrounding AI stocks this year, the semiconductor market has presented a mixed picture for investors. Recent earnings reports indicate a decline in the industrial and networking semiconductor market, while some on Wall Street anticipate the potential impact […]

Mixed Markets for Semiconductors Amidst the AI Stock Craze

Despite the frenzy surrounding AI stocks this year, the semiconductor market has presented a mixed picture for investors.

Recent earnings reports indicate a decline in the industrial and networking semiconductor market, while some on Wall Street anticipate the potential impact of an economic slowdown on automotive chips. On the other hand, smartphone components and personal computers show signs of recovery, according to Samsung Electronics Co. and Intel Corp.

The semiconductor industry is facing challenges with inventory oversupply, as stated by Brent Fredberg, a portfolio manager at Brandes Investment Partners. The concern is that the industry may be entering a period of excess stock consumption.

Broadcom Inc., which has seen a 62% increase this year, is set to release its earnings report later on Thursday. Their results and assumptions are expected to provide insights into various factors influencing the industry’s prospects. While the company produces network equipment and custom chips that have played a role in the massive investment in AI infrastructure, it also offers a wide range of products for automobiles, industrial equipment, data centers, and smartphones.

Extreme surges and declines are not new to this industry. Chip manufacturers have consistently struggled to align long-term procurement with short-term changes in demand, creating harsh cycles. Just two years before the pandemic-induced shortage and economic turmoil, chip manufacturers and their customers had excess inventory as orders dried up. Now, some of them find themselves in a similar predicament.

“Automotive and industrial markets are still in the midst of a cyclical correction as customers work through inventory, which we expect will hit bottom in the next 4 months,” wrote Angelo Zino, Vice President and Senior Equity Analyst at CFRA Research, in a report. While smartphones and computers appear to be stabilizing, “it remains to be seen if this momentum will be sustainable until 2024,” he added.

Many industry executives argue that the broad demand for semiconductors across various products provides a certain level of protection against recessions. However, the divergent behavior of these different markets makes it challenging to time investments accurately within the cycle.

Texas Instruments Inc., which fell short of expectations with a 5.6% decline this year, is one of the companies with the most customers and products in the chip industry. The company reported weakness in the industrial market in the third quarter, with contracts down by approximately 5%. Revenues from communication components dropped by over 10%.

On the other hand, the sudden surge in demand for automotive chips may be reaching its peak. The third quarter marks the fourteenth consecutive quarter in which automotive semiconductor revenue exceeded expectations, according to analyst Pierre Ferragou from New Street Research. The number of chips per car continues to grow, but it has started to normalize. Automotive manufacturers are no longer adding to their inventories, while car dealerships have an unprecedented number of vehicles in their lots, indicating the possibility of a correction.

Nevertheless, some companies seem to have weathered the storm. Micron Technology Inc., the largest U.S. manufacturer of computer memory semiconductors, improved its revenue guidance in the first quarter of last month, citing an improved market due to the recovery in demand for PCs and smartphones.

Systems built around Nvidia processors will require memory and many other chips to support them, says Thomas Martin, Senior Portfolio Manager at Globalt Investments. However, that won’t protect them from the next downturn.

“Whenever you say that about chips, they always surprise you, and the cycle happens anyway,” Martin said. “So you have to be cautious.”

FAQ:

Q: How have the results of this year’s AI stock frenzy affected the semiconductor market?
A: Despite the success of AI stocks, the semiconductor market has shown a mixed picture for investors.

Q: Which industries are experiencing a decline in the semiconductor market?
A: Earnings reports indicate a decline in the industrial and networking semiconductor markets.

Q: Which industries are showing signs of recovery in the semiconductor market?
A: According to Samsung Electronics Co. and Intel Corp, smartphone components and personal computers are showing signs of recovery.

Q: Is the semiconductor industry entering a period of excess stock consumption?
A: Portfolio manager Brent Fredberg suggests that it is possible.

Q: What factors are influencing the prospects of the semiconductor industry?
A: Broadcom Inc., with its significant reported earnings, is expected to provide insights into various factors influencing the industry’s prospects.

Q: What is the current situation of the semiconductor industry in the automotive and industrial sectors?
A: Angelo Zino, an analyst from CFRA Research, states that the automotive and industrial semiconductor markets are undergoing a period of correction as customers work through their inventories.

Q: What are the future prospects for the semiconductor industry?
A: While smartphones and computers are stabilizing, it remains uncertain if this momentum will be sustainable until 2024, according to Angelo Zino.