Analysts are Slashing Price Targets of These 10 Semiconductor Stocks

In this article, we discuss 10 semiconductor stocks that analysts are slashing price targets of. If you want to skip our discussion on the semiconductor industry, go directly to Analysts are Slashing Price Targets of These 5 Semiconductor Stocks.

Semiconductor stocks have been on a downward trend since the start of the year due to concerns related to rising costs, a looming recession, and a slowdown in demand. On top of it, industry experts think that things will get worse before getting better. In a research note issued on July 13, Christopher Danely at Citi has predicted that semiconductor stocks will fall by more than 15% during the second half of the year. These sentiments are shared across the Street as analysts are lowering their estimates and target prices of notable semiconductor stocks like Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA), and Micron Technology, Inc. (NASDAQ:MU). Danely thinks that the upcoming decline in semiconductor stocks will be the worst to be recorded in the last ten years. He thinks that “excessive valuation, excessive inventory build, and a recession” are the three key reasons for the downturn.

Semiconductor entities having the highest exposure to the personal computer and smartphone industry will be most vulnerable during this period as the analyst anticipates a fall of 9% YoY in unit sales this year across both categories. Both these industries account for 50% of the demand for semiconductors globally. Meanwhile, other leading industries like artificial intelligence, cloud computing, and electric vehicles make up for the remaining demand. It must be noted that in 2020 and 2021, PC and smartphone demand rocketed as the COVID-19 pandemic resulted in an increased number of people working from home. However, the demand can be seen waning as the world regains a sense of normalcy.

The semiconductor industry is facing pressure from both the demand and the supply side. On one end, there is a slowdown in consumer demand, while on the other hand, there are excess inventories. The chip shortage experienced recently due to supply chain disruptions and labor shortages led to semiconductor companies building up their inventories. However, the slowdown in demand is now forcing companies to offload excess inventory at lower prices, putting the top line and bottom line under pressure.

Furthermore, consumer prices increased at a rate of 9.1% YoY during June 2022. This was higher than anticipated and fueled the expectations that the Federal Reserve would announce another steep increase in benchmark interest rates, forcing investors to stay away from high-growth companies.

Our Methodology

Let’s take a look at the 10 semiconductor stocks that have observed a downward revision in target price recently. We’ll discuss the possible reasons for the decline in target price to provide readers with a better investment context. The hedge fund sentiment discussed is based on Insider Monkey’s database of 912 elite funds as of Q1 2022.

10. Skyworks Solutions, Inc. (NASDAQ:SWKS)

Number of Hedge Fund Holders: 39

Skyworks Solutions, Inc. (NASDAQ:SWKS) is an Irvine, California-based semiconductor manufacturing company.

On July 12, John Vinh at Keybanc slashed the target price on Skyworks Solutions, Inc. (NASDAQ:SWKS) from $160 to $140 and reiterated an Overweight on the stock. He slashed his estimates on several semiconductor stocks and highlighted that a correction is around the corner for the semiconductor industry.

Vinh added that most of the findings were negative during his investigation of the supply chain of the semiconductor industry. The analyst highlighted the lockdowns in China due to COVID-19 during Q2 2022 and the weak demand for PC and smartphones as the key reasons for lowering his estimates. However, he sees strong demand from automobile, industrial, and cloud computing industries in the near future. Vinh also commented that the decline in Skyworks Solutions, Inc.’s (NASDAQ:SWKS) lead times represents excess inventory, and a correction could take place in the second half of 2022.

At the end of the first quarter of 2022, 39 hedge funds reported owning a stake in Skyworks Solutions, Inc. (NASDAQ:SWKS).

9. ASML Holding N.V. (NASDAQ:ASML)

Number of Hedge Fund Holders: 46

ASML Holding N.V. (NASDAQ:ASML) is a Dutch semiconductor company that specializes in the development and manufacturing of photolithography systems needed for the production of semiconductor chips. The company operates through 60 locations in 16 countries.

In an investment note issued on July 15, Joe Quatrochi and his team of analysts at Wells Fargo slashed the price target on ASML Holding N.V. (NASDAQ:ASML) by 20% to $600. The analysts anticipate ASML Holding N.V. (NASDAQ:ASML) to be impacted by the decline in spending on wafer fabrication equipment.

In June 2022, Ray Dalio’s Bridgewater Associates initiated a short position of $1 billion in ASML Holding N.V. (NASDAQ:ASML). The short bet was part of a $10.5 billion bet against European stocks. The biggest hedge fund in the world initiated the short position to capitalize on the slowdown of economic growth in the Eurozone as inflation takes a toll on consumers.

ClearBridge Investments presented its insights on ASML Holding N.V. (NASDAQ:ASML) in its Q1 2022 investor letter. Here’s what the investment management firm said:

“During the quarter, we reduced our semiconductor exposure through the trim of ASML (NASDAQ:ASML) to manage concerns of a slowdown due to the risk of double ordering and potential softness in some consumer end markets. We increased our position in IT services with the purchase of Accenture as we remain optimistic about the long-term growth potential these companies provide, which is underpinned by the compressed digital transformation cycle, rising cloud adoption and growth in data-driven insights.

Despite the market volatility and hyper focus on rising rates, chief information officer surveys continue to forecast resilience in IT budgets this year. Growth in IT spending for 2022 is expected to remain above the 10-year pre-COVID-19 average, according to Morgan Stanley. We believe this is a result of the strong secular underpinnings brought on by digital transformation and businesses focusing on increasing efficiencies through technology.”

Out of the 912 hedge funds in Insider Monkey’s database, 46 funds held a stake in ASML Holding N.V. (NASDAQ:ASML) as of Q1 2022.

8. Lam Research Corporation (NASDAQ:LRCX)

Number of Hedge Fund Holders: 59

Lam Research Corporation (NASDAQ:LRCX) is a California-based manufacturer and supplier of wafer fabrication equipment to the semiconductor industry.

On July 15, Joe Quatrochi and his team of analysts at Wells Fargo lowered the price target on Lam Research Corporation (NASDAQ:LRCX) from $525 to $460 and maintained an Equal Weight rating on the stock. The revision in target price has restricted the potential upside to 7.7% only. The team of analysts sees a difficult setup for the semiconductor industry as the earnings results for Q2 2022 start to roll out.

Analysts at Wells Fargo think that the semiconductor industry is undergoing a cyclical correction. Hence, the demand for wafer fabrication equipment and the capital expenditure will be reduced. The investment firm added that it is attempting to catch a fundamental bottom for the industry during this uncertainty.

Vulcan Value Partners shared its outlook on Lam Research Corporation (NASDAQ:LRCX) in its Q1 2022 investor letter. Here’s what the firm said:

“Lam Research Corp. designs and manufactures equipment used in the fabrication of semiconductors. Recent supply chain issues have negatively impacted the industry and has resulted in chip shortages. The industry is performing well, exceeding our expectations, and Lam Research’s fundamentals remain strong. The long-term secular drivers of demand and growth in the industry continue to be very powerful. Lam Research is experiencing increasing returns on capital, higher margins, and more stable results.”

Fisher Asset Management is the leading investor in Lam Research Corporation (NASDAQ:LRCX), with a stake worth over $1.02 billion as of Q1 2022.

7. Broadcom Inc. (NASDAQ:AVGO)

Number of Hedge Fund Holders: 71

Broadcom Inc. (NASDAQ:AVGO) is a San Jose, California-based diversified designer, developer, manufacturer, and supplier of semiconductor and infrastructure solutions software.

On June 29, Vivek Arya at Bank of America reiterated a Buy rating on Broadcom Inc. (NASDAQ:AVGO) but reduced the target price from $780 to $625. The analyst lowered the target price for Broadcom Inc. (NASDAQ:AVGO) due to its exposure in the data center segment. Arya is bullish on the semiconductor industry but expects the growth in capital expenditure of top cloud computing players to decline to 10.5% by 2023. The decline in capital expenditure would hurt the growth of semiconductor companies. Arya also highlighted that in the last two economic recessions, annual growth for semiconductor companies fell to 4% – 5% before rising to the historical average of 25% to 30%.

Broadcom Inc. (NASDAQ:AVGO) was mentioned in the Q4 2021 investor letter of ClearBridge Investments. Here’s what the firm said about the company:

“However, ClearBridge portfolio companies are responding by supporting their workforces and showing resilience in adapting and thriving. Semiconductor companies ClearBridge owns and engages with have been successful in advancing vaccinations in their global supply chains. In Malaysia, for example, Broadcom has taken part in PIKAS, a public-private partnership vaccination program focusing on the workforce in critical manufacturing sectors. By the summer of 2021 Broadcom was able to get over 90% of workers in its Penang factory at least one dose of vaccine, and roughly 73% fully vaccinated. Companies in the program also pay the administration cost for vaccinations including cases where the employee is no longer employed by the company before full immunization of the employee.”

Overall, 71 hedge funds held a stake in Broadcom Inc. (NASDAQ:AVGO) as of Q1 2022.

6. Applied Materials, Inc. (NASDAQ:AMAT)

Number of Hedge Fund Holders: 74

Applied Materials, Inc. (NASDAQ:AMAT) is a Santa Clara, California-based supplier of equipment, software, and services for the production of semiconductor chips for various industries.

On July 15, Joe Quatrochi and his team of analysts at Wells Fargo lowered the price target on Applied Materials, Inc. (NASDAQ:AMAT) from $135 to $110 and maintained an Overweight rating on the stock. The analysts expect the sales of wafer fabrication equipment to decline from $99.2 billion to $96 billion in 2022 and then to $91 billion in 2023. Furthermore, the estimates for Applied Materials, Inc. (NASDAQ:AMAT) were cut down by 6% by the investment firm as it waits for Q2 2022 results and July data points.

Applied Materials, Inc. (NASDAQ:AMAT) was discussed in the Q4 2021 investor letter of Vulcan Value Partners. Here’s what the firm said:

“Applied Materials, another material contributor for the quarter, provides materials engineering solutions for semiconductor fabrication equipment and manufacturing tools for advanced displays. Similar to Lam Research, Applied Materials is executing well and continuing to experience the tailwinds from consolidation and growth within the industry.”

According to Insider Monkey’s proprietary data, Generation Investment Management is the biggest hedge fund holder of Applied Materials, Inc. (NASDAQ:AMAT), with a stake of $560.98 million as of Q1 2022.

Apart from Applied Materials, Inc. (NASDAQ:AMAT), stocks like Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA), and Micron Technology, Inc. (NASDAQ:MU) have also received downward revisions in price targets recently.

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Disclose. None. Analysts are Slashing Price Targets of These 10 Semiconductor Stocks is originally published on Insider Monkey.