Chip stocks squeezed by demand drop and geopolitical tensions - Axios

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Chip stocks are getting dumped in light of new export restrictions and reports of worsening demand.

Why it matters: The worries should be seen more as short term than long, Bob Johnson, VP and semiconductor and electronics analyst at Gartner, tells Axios.

• “The chip sector goes through periodic cycles … and has been for as long as I've been watching it, which is over 40 years, and [it] will probably continue to do so,” he says.

Details: Chip stocks including Qualcomm and Applied Materials were among today’s biggest losers, pushing the Nasdaq Composite into its second bear market this year.

• They tumbled to their lowest level in two years yesterday, after the Biden administration said on Friday that chipmakers will need permission to sell certain chips used for AI and supercomputing to Chinese companies.
• The limits came on the heels of separate financial reports from AMD and Samsung which revealed “breathtaking” drops in demand for memory chips and PC-processors.

The big picture: Semiconductor stocks rode a similar wave as many stay-at-home stocks like Netflix or Shopify — benefitting from outsized demand at the onset, and cooling as travel and dining rebounded, and energy costs and inflation ate away at demand.

• Restrictions stemming from U.S.-China tensions, on the other hand, are separate and independent from the chip market cycle, Johnson says.
• If anything, the new limits will exacerbate the current "correction cycle." But emerging products related to the metaverse, for example, may boost demand for more servers. And the continued need for AI will require more computing power and chips, Johnson says.

What to watch: “We'll probably hit the bottom sometime around the middle of the third quarter next year,” he adds.

• The consumer market, which includes PCs and smartphones, will continue to be weaker (revenue growth of about 1% to 1.5%) than the enterprise market for data center computing and servers (7.5%).
• For next year, the consumer chip market is expected to decline between 5% and 6% while the enterprise market is expected to decline between 1% and 1.5%.

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Chip stocks squeezed by demand drop and geopolitical tensions - Axios
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