Concerns about rising inventories in the semiconductor industry have led to worries about order cancellations. But some semiconductor stocks are more at risk than others from canceled orders.
Truist Securities analyst William Stein identified several semiconductor stocks that he believes are least at risk for order cancellations.
Those chipmakers include Analog Devices, Microchip Technology, NXP Semiconductors, Onsemi, Texas Instruments, and AMD-owned Xilinx. Stein made the list after consulting with executives at two large distributors.
Those chipmakers make more of the "golden screws" that are in short supply for completing products, he said in a report Tuesday.
Of those semiconductor stocks, Stein rates four as buys: Analog Devices, Microchip, Onsemi and NXP. He has hold ratings on AMD and TI.
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Picture Mostly Negative For Semiconductor Stocks
Supply chain data suggests weakening semiconductor revenue over the next two quarters, Stein said.
KeyBanc Capital Markets analyst John Vinh said his reading of the supply chain data paints a mixed, but mostly negative, picture for semiconductor stocks.
"From a cyclical perspective, increasing inventories and easing lead times indicate a correction is looming" in second half 2022, he said in a note to clients Tuesday.
Demand in consumer end markets, such as PCs and smartphones, continues to weaken, he said. Meanwhile, demand in the automotive, industrial and cloud computing markets remains robust.
As such, he lowered his sales estimates and stock price targets on AMD, Nvidia, Skyworks Solutions and Synaptics.
"Channel inventories are running (at) 2.5 to 3 months, which is well above historical levels of 1.5 months, with some distribution partners indicating end-customer inventory increased by 50% to 75% quarter to quarter in Q2," Vinh said.
The best-positioned semiconductor stocks now are those with the highest exposure to the auto and industrial end markets, he said. They include Analog Devices, Indie Semiconductor, NXP and Onsemi.
Secular Winners Among Chip Stocks
William Blair analyst Alessandra Vecchi called three semiconductor stocks "secular winners" amid the current chip industry upheaval. They are Monolithic Power Systems, Lattice Semiconductor and SiTime.
Those semiconductor stocks are more insulated from the traditional chip cycle, she said in a report Tuesday. That's due to secular tailwinds, market share gains and higher-margin products, she said.
"Investor sentiment on semiconductors is overwhelmingly negative given persistent inflation, the economic sensitivity of semis, and fears that we are entering another inventory correction led by the consumer end-market, which has seen handsets and PCs roll," she said.
Industry pundits believe the downturn in the chip cycle started with consumer devices and will shift next to enterprise and data center markets. The industrial market likely will be the last to roll over, Vecchi said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
