Over the past two years, the semiconductor industry has gained significant traction, thanks to robust demand for chips and worldwide semiconductor shortage. The Biden administration passed a long-awaited law on August 9 to provide $52.70 billion in subsidies for boosting nationwide semiconductor production and research to address the chip shortage.
However, the demand for PCs and other electronic devices has taken a nosedive lately. The slowing economy due to inflationary pressures and rate hikes have weighed heavily on consumer spending, weakening consumer electronics demand. Furthermore, major manufacturers are currently dealing with excess inventory of semiconductors, which has forced them to reconsider their capital expenditure plans.
According to the latest Gartner Inc (IT) forecast, global semiconductor revenue is expected to grow 7.4% in 2022, down from the prior-year growth of 26.3%. Also, this is down from the previous forecast of 13.6% growth in 2022.
Richard Gordon, Practice VP at Gartner, said, “Although chip shortages are decreasing, the global semiconductor market is entering a period of weakness, which will persist through 2023 when semiconductor revenue is projected to decline 2.5%. We already see weak semiconductor end markets, especially those exposed to consumer spending.”
Given this backdrop and concerns over Chinese pressure on Taiwan, Wall Street has witnessed a massive sell-off in semiconductor stocks. Investors’ bearish sentiment is evident from the iShares Semiconductor ETF’s (SOXX) 28.7% decline year-to-date.
Therefore, we think it could be wise to avoid fundamentally weak semiconductor stocks Advanced Micro Devices, Inc. (AMD), Marvell Technology, Inc. (MRVL), and Wolfspeed, Inc. (WOLF).
Advanced Micro Devices, Inc. (AMD)
AMD operates as a global semiconductor company. The company’s two segments are computing and Graphics; and Enterprise, Embedded, and Semi-Custom. It serves original equipment manufacturers (OEMs), public cloud service providers, original design manufacturers, system integrators, independent distributors, online retailers, and add-in-board manufacturers.
AMD’s operating expenses increased 150.8% year-over-year to $2.51 billion for the fiscal 2022 second quarter ended June 25, 2022. Its operating income was $526 million, down 36.7% year-over-year. Also, its net income came in at $447 million, down 37% year-over-year, while its EPS decreased 53.4% year-over-year to $0.27 during the same period.
As of June 25, 2022, AMD’s long-term debt stood at $2.46 billion, compared to $1 million as of December 31, 2021. A significant increase in expenses incurred by the company for servicing this debt is expected due to rising interest rates.
AMD’s shares have declined 20.5% over the past six months and 38.3% year-to-date to close the last trading session at $92.73.
AMD’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a D grade for Stability. AMD is ranked #88 out of 95 stocks in the Semiconductor & Wireless Chip industry.
Click here to access the additional POWR Ratings for AMD (Growth, Value, Momentum, Sentiment, and Quality).
Marvell Technology, Inc. (MRVL)
MRVL is engaged in designing, developing, and selling integrated circuits and other infrastructure semiconductor solutions. The company’s offerings cater to five markets: data center; carrier infrastructure; enterprise networking; consumer; and automotive/industrial.
MRVL’s operating expenses increased 36.1% year-over-year to $681.10 million for the fiscal 2023 first quarter ended April 30, 2022. Its operating income came in at $69.80 million, compared to a loss of $82.30 million in the prior-year period. The company’s net loss widened 87.9% year-over-year to $165.70 million during the same period.
As of April 30, 2022, the company’s total liabilities stood at $6.57 million, compared to $6.41 million as of January 29, 2022.
MRVL’s shares have slumped 22.9% over the past six months and 16.5% over the past year to close the last trading session at $52.24.
MRVL’s bleak prospects are reflected in an overall rating of D, which equates to a Sell in our POWR Ratings system. MRVL also has a D grade for Stability, Value, and Quality. MRVL is ranked #83 out of 96 stocks in the Semiconductor & Wireless Chip industry.
Click here to access MRVL’s Growth, Sentiment, and Momentum rating.
Wolfspeed, Inc. (WOLF)
WOLF primarily deals with silicon carbide, gallium nitride (GaN) materials, and semiconductor devices for power and radio frequency (RF) applications. The company caters to European, Chinese, United States, Japanese, South Korean, and international markets.
On February 1, WOLF announced that it would upsize its senior convertible notes from $500 million to $650 million in aggregate principal amount. Servicing this note offering might significantly impact the company’s cash balance.
For the fiscal 2022 fourth quarter ended June 26, 2022, WOLF’s non-GAAP operating loss came in at $8.6 million. The company reported a non-GAAP net loss of $2.9 million, which translated to a non-GAAP loss per share of $0.02 during this period. The company’s total long-term liabilities stood at $1.09 billion, up 13.4% year-over-year.
Analysts expect WOLF to incur a loss per share of $0.05 in the first quarter of the current fiscal year. The stock has plunged 4.4% year-to-date to close the last trading session at $115.83.
The need for investors to exercise caution with WOLF is evident from its overall POWR Rating of D, which equates to a Sell. It has a grade of F for Value and Quality and a D for Stability. Consequently, it is ranked #89 among 96 stocks in the same industry.
Click here to access WOLF’s rating for Sentiment and Momentum.
AMD shares fell $0.29 (-0.30%) in after-hours trading Thursday. Year-to-date, AMD has declined -32.47%, versus a -11.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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