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After a strong rally since the start of 2023, semiconductor stocks came under pressure recently amid concerns about lofty valuations and the possible threat of a recession in the U.S. Moreover, Intel’s (INTC) lackluster Q2 results last week sent the chip stock spiraling downwards by more than 20% in a single trading session, dragging its peers lower as well. Here are three semiconductor stocks that could feel the impact from Intel’s big miss.
Citi Lowers Spending Estimates
Following Intel's miss, brokerage firm Citi (C) cut its chip equipment spending forecasts for 2024 and 2025 to $100 billion and $113 billion, below its prior forecasts of $103 billion and $120 billion, respectively. This comes after Intel warned investors it would reduce capital expenditures tied to new plants and equipment by 20% in 2024 to between $25 billion and $27 billion.
Further, Citi explained a potential ban on memory chips in China could lower wafer fab equipment spending by $1 billion as the country, accounts for 15% of high-bandwidth memory demand. These factors also prompted Citi to lower its estimates and price targets for Applied Materials (AMAT), Lam Research (LRCX), and KLA Corp (KLAC).
Let’s see if you should buy the dip in these chip stocks.
1. Lam Research Stock
Valued at $104 billion by market cap, Lam Research stock is down 29% from all-time highs. Lam Research (LRCX) provides the equipment required for wafer fabrication, which is crucial to building integrated circuits used across electronic devices.
In the June quarter, it reported revenue of $3.87 billion, higher than the management guidance midpoint of $3.8 billion. Priced at 21.5x forward earnings, LRCX stock has returned more than 1,000% to shareholders in the past decade.
Out of the 27 analysts covering LRCX stock, 16 recommend a “strong buy,” two recommend a “moderate buy,” and nine recommend a “hold.”
The average target price for the stock is $1,051.44, about 31.6% higher than the current trading price.
2. KLA Corp. Stock
Valued at $101.2 billion by market cap, KLA (KLAC) supplies process control and yield management solutions for the semiconductor and related nano-electronics industries. In fiscal 2024 (which ended in June), KLA reported revenue of $2.57 billion, at the upper end of the guidance range of $2.5 billion. Its adjusted earnings of $6.60 per share also surpassed midpoint estimates in Q4.
KLA ended the quarter with an operating cash flow of $3.31 billion and a free cash flow of $3.03 billion. It pays shareholders an annual dividend of $5.80 per share, indicating a yield of 0.83%. Its dividend payments in fiscal 2024 totaled less than $800 million, which means its payout ratio was less than 25%.
Out of the 25 analysts covering KLAC stock, 14 recommend a “strong buy,” one recommends a “moderate buy,” and 10 recommend a “hold.”
The average target price for the stock is $875, 16.3% higher than the current trading price.
3. Applied Materials Stock
The final chip stock on the list is Applied Materials (AMAT), which is valued at $157.7 billion by market cap.
Down 25% from all-time highs, AMAT has returned over 800% to shareholders in the last 10 years after adjusting for dividend reinvestments. Applied Materials produces wafer fab equipment, which is then used to manufacture microchips used in phones and televisions.
The company has increased its sales from $23.1 billion in fiscal 2021 to $26.5 billion in fiscal 2023 (ended in October). In this period, its net income has risen by $1 billion to $6.9 billion. In the first six months of fiscal 2024, AMAT's sales increased by 14% year over year to $13.3 billion, while net income improved by a similar margin to $3.7 billion.
AMAT also pays shareholders a quarterly dividend of $0.40 per share, up from $0.32 per share last year.
Out of the 32 analysts covering AMAT stock, 19 recommend a strong buy, two recommend a “moderate buy,” and 11 recommend a “hold.”
The average target price for the stock is $239.38, 25.6% higher than the current trading price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
