First-quarter earnings season is evoking deja vu for semiconductor stocks. Just as with fourth-quarter earnings season three months ago, chip stocks can't count on beat-and-raise reports to boost their value, analysts say.
Semiconductor stocks are facing negative sentiment from investors who believe the chip cycle has turned or soon will turn south.
Early Thursday, Taiwan Semiconductor Manufacturing delivered a beat-and-raise earnings report for the March quarter. TSM stock initially rose, but then reversed. TSM stock fell 3.1% to close at 98.36.
"A reversal and fade of early gains by TSM and the sector would be terrible and strengthen the bear case across semis into the bulk of earnings to come," Jordan Klein, managing director for tech, media and telecom sector trading at Mizuho Securities, said in a note to clients before the market open.
Short sellers will be emboldened to put more downward pressure on semiconductor stocks, Klein said.
Taiwan Semi, Micron Are Earnings Guinea Pigs
Investors are keenly watching how TSM stock reacts post-earnings as "a key tell for how semis may trade into the bulk of earnings to come," Klein said.
TSM stock appears to be following the pattern set by Micron Technology two weeks ago. Micron stock initially popped after its beat-and-raise earnings report on March 29. But it reversed and ended the next day of regular trading down 3.5%.
The Philadelphia semiconductor index, known as SOX, fell 2.9% on Thursday and is down 23.3% year to date. The SOX contains the 30 largest semiconductor stocks traded in the U.S.
Next week will see earnings reports from semiconductor equipment makers ASML and Lam Research. The earnings season for semiconductor stocks kicks into high gear the following week with reports from Intel, Qualcomm, STMicroelectronics, Texas Instruments and more.
Semiconductor Stocks 'Almost Uninvestable'
In a note to clients Wednesday, BofA Securities reported widespread investor skepticism about semiconductor stocks and whether the uptrend in the chip cycle will continue. The brokerage sees most chip companies reporting in-line or better results in the first and second quarters. It predicts the positive chip cycle will extend into 2023.
"Ironically, strong guides could be viewed skeptically by investors as just a delay in the inevitable macro-induced reset," BofA analysts said. "Investor skepticism and market turmoil could keep chip stocks under pressure but also present enhanced buy opportunities."
BofA Securities is forecasting 13% growth in semiconductor industry sales in 2022. Sales will be driven by continued strength in cloud, enterprise, 5G, auto and industrial markets, the firm said.
"From an investment perspective, semiconductor stocks are almost uninvestable today," Evercore ISI analyst C.J. Muse said in a report Wednesday. "The key investor debate for the semiconductor industry today is around the timing and magnitude of an eventual inventory correction."
Most investors think chipmakers now are shipping more chips than the end markets can use, leading to inventory buildups, Muse said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
