The first week of May saw beat-and-raise earnings reports from numerous chipmakers. But investors worried about a peaking chip cycle remain cautious on semiconductor stocks.
So far this year, the Philadelphia semiconductor index, known as SOX, is down 24.4%, vs. a 13.5% decline for the S&P 500. The SOX contains the 30 largest semiconductor stocks traded in the U.S.
Semiconductor stocks delivering better-than-expected March-quarter results and guidance in the past week included Advanced Micro Devices, Cirrus Logic, Lattice Semiconductor, Monolithic Power Systems, NXP Semiconductors, Onsemi, Rambus, SiTime and Synaptics.
"Despite the solid results and optimistic tone, overall investor sentiment seems to lean toward apathy (with concerns around a cyclical peak still on their mind)," Deutsche Bank analyst Ross Seymore said in a note to clients on Friday.
Management commentary has been mostly positive on demand and supply at semiconductor companies, Seymore said.
Selective Stance On Semiconductor Stocks
Meanwhile, investor worries range from macroeconomic issues such as inflation and geopolitical uncertainty to industry-specific concerns. Those concerns include weakening PC and smartphone sales, Covid-related shutdowns in China, and consumer pessimism.
"The general angst of the market leads us to maintain our selective stance on the semi sector," Seymore said.
Among semiconductor stocks, he recommends Broadcom for its steady growth. He also likes Marvell Technology and Qualcomm for 5G handsets and infrastructure.
Chipmakers that disappointed with their March-quarter results and/or guidance in the past week included Alpha & Omega Semiconductor, Qorvo, Skyworks Solutions and Wolfspeed.
Institutions, Hedge Funds 'Extremely Bearish'
"Many institutional and hedge funds are extremely bearish on the semiconductor sector," Daniel Morgan, senior portfolio manager for Synovus Trust, said in a note to clients Thursday. The negative sentiment is at its highest point since the Trump administration's trade war with China, he said.
Skeptics point to slowing PC sales and softening demand for smartphones in China, he says.
Morgan is maintaining a positive view on semiconductor stocks exposed to cloud data center spending, 5G wireless infrastructure and gaming.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
