Chip stocks were hammered for a second day Wednesday as more analysts accepted that memory chip demand for the remainder of the year will not be as strong as expected as recently as a few months ago.
On Wednesday, Goldman Sachs analysts downgraded Micron Inc. MU, -4.47% and Lam Research Corp. LRCX, -3.71% because of weaker-than-expected demand for memory chips. Micron shares fell 4.7%, and were in danger of falling to a loss for the year, hanging on to a 1.3% gain. Lam shares fell 2.9%.
Meanwhile, the PHLX Semiconductor Index SOX, -1.42% fell 1.7%, while the S&P 500 index SPX, +0.10% was flat and the tech-heavy Nasdaq Composite Index COMP, -0.22% declined 0.4%. The SOX index, which had been up as much as 15% on the year, is up 6.7% year to date, compared with an 8% gain in the S&P 500 and a 14.9% gain in the Nasdaq.
On Tuesday, RBC analyst Amit Daryanani lowered his price target on Micron to $70 from $83, citing memory chip weakness.
All year the debate has raged: Are memory chips heading for a delayed downturn given the supply and demand cycle inherent in the industry, or has the nature of the cycle been changed and we’re now in uncharted territory because high demand for data centers and cloud applications has disrupted normal cycles?
As that debate has played out, the SOX chip index has staggered above and below its 50-day and 200-day moving averages. With Wednesday’s round of downgrades, the SOX index once again fell below its 200-day moving average for the fourth time this year since April.
The types of chips in question are DRAM, or dynamic random access memory, the type of memory commonly used in PCs and servers, and NAND chips, the flash memory chips that are used in USB drives and smaller devices such as digital cameras.
Back in April, analysts were predicting soft demand for memory chips, saying that Micron could be stretched thin in the buying cycle, and by the end of that month even Apple Inc. AAPL, -1.13% was predicting a fall in memory prices. Then, Micron shares hit their highest price since the dot-com bust in late May after the company raised its outlook and announced a $10 billion share buyback. That optimism all started falling apart when Micron itself and KLA-Tencor Inc. KLAC, -2.76% said last week that demand was not as strong as had been expected.
One of the few chip stocks posting gains Wednesday was Advanced Micro Devices Inc. AMD, +6.15% adding to gains in an unprecedented run over the past 97 trading days. AMD shares were last up 4.4% at $31.42.
After closing at a 52-week low of $9.53 on April 9, AMD shares have skyrocketed more than 220%. Shares closed above $30 for the first time in more than 12 years after Rosenblatt Securities analyst Hans Mosesmann hiked his price target on AMD to $40 from $30, making him once again Wall Street’s most bullish analyst on the stock.
Other chip stocks underperforming even the SOX index on Wednesday were Analog Devices Inc. ADI, -2.41% Applied Materials Inc. AMAT, -1.99% Entegris Inc. ENTG, -5.16% KLA-Tencor, Maxim Integrated Products Inc. MXIM, -4.62% Nvidia Corp. NVDA, -1.87% Skyworks Solutions Inc. SWKS, -1.83% Teradyne Inc. TER, -5.25% and Texas Instruments Inc. TXN, -1.80%
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