Semiconductors are in everything. Our phones, our laptops, our televisions. Even our cars. But concerns about a global recession and continued worries about supply shortages stemming from lingering pandemic-related shutdowns in Asia over the past two years are hurting top chip companies.
Shares of Intel are down more than 45% this year, making it the biggest dog of the Dow. Intel is struggling despite well-publicized plans to build more plants in the United States and hire more at home. President Biden even just toured the new Intel facility in Ohio for its groundbreaking ceremony.
To be fair, Intel is not the only chip company that's having a tough time this year.
Shares of semiconductor rivals Nvidia and AMD have both plunged more than 50%. The supply chain woes and fears of about a rapidly slowing economy are weighing on the entire sector. The benchmark Philadelphia Semiconductor Index, or SOX as it is known on Wall Street, is down nearly 40% in 2022.
But Intel has been a laggard for longer. Shares are now trading at their lowest level since May 2016. The stock is down more than 25% in the past five years while the SOX has more than doubled, Nvidia is up nearly 200% and AMD has soared more than 400%.
Can newish CEO Pat Gelsinger (he took over in 2021) turn Intel around? Investors may give Gelsinger more time to get the company back on track.
How much time is unclear though. Gelsinger's predecessor, Bob Swan, was CEO for only a little more than two years. Swan took over for Brian Krzanich, who stepped down in 2018 after disclosing a "'past consensual relationship" with an Intel employee.
One fund manager who owns the stock thinks Gelsinger will be able to return Intel to its former glory. But he said it will take time and that investors don't need to rush into the stock just yet.
"I don't think there is a sense of urgency to buy. But longer-term, I think Intel will right the ship," said Jeff Travis, portfolio manager of Oak Associates Funds. Travis owns Intel in the Red Oak Technology Select fund.
Travis does think that semiconductor stocks are still a good "secular growth industry" and that valuations are now attractive given how sharply the stocks have fallen.
He said that chip equipment companies KLA and Kulicke and Soffa, which sell products to major semiconductor manufacturers, and Ambarella, whose video processing chips are used in cars, are top picks.
So is the worst over for these and other semiconductor companies? Goldman Sachs analysts don't think so. They cut their revenue and earnings estimates on Friday for memory chip leaders Micron, which will report earnings on Thursday, and Western Digital.
"There have been a string of negative industry data points," the analysts noted, pointing to cautious comments about demand from Intel, AMD and Nvidia in recent weeks. The Goldman analysts added that there is "weakness across the PC, enterprise server, and smartphone end-markets."
So it may be soon to call a bottom for the major chip companies just yet.
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