Advanced Micro Devices, Taiwan Semiconductor Manufacturing, and Dell Technologies experienced significant downturns yesterday.
In a surprising turn of events, the shares of major semiconductor companies, including Advanced Micro Devices (AMD), Taiwan Semiconductor Manufacturing Company (TSMC), and Dell Technologies, experienced a fall on Wednesday, following disappointing earnings reports from HP Inc. and Hewlett Packard Enterprise. However, the current outlook for these companies, as well as the broader semiconductor sector, remains cautiously optimistic.
The decline in the shares of HP Inc. and Hewlett Packard Enterprise was not due to any company-specific news, but rather a 21.7% decline in revenue for HP Inc. last quarter, largely attributed to a 29% decline in PC sales. Hewlett Packard Enterprise's earnings report also fell short of expectations, with a 3.9% increase in revenue last quarter, which was lower than expectations.
Despite these challenges, the semiconductor sector has been benefiting from positive cyclical trends, especially in the automotive and industrial markets. For instance, NXP Semiconductors, another major player, shows strong earnings momentum and an optimistic outlook for H2 2022, with analysts anticipating upward revisions in earnings estimates due to growth in key end markets.
AMD, in particular, is showing signs of resilience and potential upside. The company is currently consolidating near a key resistance level around $145 but is expected to break through this pivot point soon. Once AMD surpasses this level, market analysts predict an acceleration that could drive the stock above $200 by the end of 2022, fueled by strong demand in the semiconductor sector and competitive positioning relative to peers like Nvidia.
TSMC, the largest outsourced foundry in the world and a leader in manufacturing leading-edge chips, is highly exposed to PCs and servers, with its high-performance computing division accounting for 44% of revenue last quarter. Despite the recent challenges, the company's critical supplier role in the global semiconductor supply chain ensures a positive outlook for the future.
Dell Technologies, which operates with both a PC and enterprise-server division under one roof, has been impacted by the mixed earnings reports in the technology hardware sector. However, given Dell's diversification, it may weather downturns better than more single-sector semiconductor plays.
The inflation-driven Federal Reserve interest rate hikes are a notable headwind, as higher rates generally increase borrowing costs and can temper tech sector valuations. However, the current market environment is described as a "melting up" with the S&P 500 reaching new highs, suggesting that investors are still willing to support growth stocks like semiconductors, expecting that easing inflation and strong demand will sustain earnings growth.
In summary, while the recent earnings reports from HP Inc. and Hewlett Packard Enterprise highlight near-term challenges in the enterprise technology segment, the broader semiconductor recovery and growth potential in H2 2022 remain strong. The disappointing results do not overshadow the improving sector fundamentals and strong demand drivers, though inflation and Federal Reserve policies pose ongoing risks.
[1] Source: MarketWatch, Seeking Alpha, Yahoo Finance [2] Source: CNBC, Yahoo Finance [3] Source: Trendforce, Yahoo Finance, MarketWatch
- Investors are eying AMD with anticipation, predicting a breakthrough of the $145 resistance level, which could propel the stock price above $200 by the end of 2022, driven by strong demand in the semiconductor sector and the company's competitive standing relative to peers like Nvidia.
- Despite the recent challenges faced by major semiconductor players due to disappointing earnings reports and a decline in PC sales, the sector benefits from positive cyclical trends, particularly in the automotive and industrial markets, with NXP Semiconductors showing strong earnings momentum and an optimistic outlook for H2 2022.
- TSMC, the largest outsourced foundry in the world, maintains a positive outlook for the future despite exposure to PCs and servers, as the company's fundamental role in the global semiconductor supply chain offers stability and growth prospects.
