By Philip van Doorn
Analysts’ estimates for earnings and sales have plunged for some of the largest chip makers, including Nvidia and Intel, but they have risen for others
Semiconductor stocks have been great outperformers over long periods, but their movement this year underscores how cyclical the industry can be.
Here is a look behind the numbers that are driving down shares of chip makers, followed by a summary of the group’s excellent long-term record and a look at what may lie ahead.
Over long periods, investors love to see consensus estimates for companies’ sales and profits increasing steadily. What can be better than a smooth upward slope to the right?
The most common valuation metric used by stock investors is the forward price-to-earnings ratio — a company’s current share price divided by the consensus earnings-per-share estimate for the following 12 months. It is reasonable to expect the rolling 12-month estimates to increase as time passes by. Those increases support rising stock prices over time.
A look at the PHLX Semiconductor Index illustrates that some of the P/E denominators have fallen hard recently. This index of 30 U.S.-listed chip makers is weighted by market capitalization and tracked by the iShares Semiconductor ETF (SOXX). Here’s a snapshot of the exchange traded fund’s forward P/E ratios as of Sept. 2 and June 30:
This may not look so bad — SOXX’s share price has risen since the end of June and the ETF’s rolling 12-month consensus EPS estimate has declined by 7%. Then again, investors aren’t pleased — SOXX is down 34% this year.
Now let’s dig into the SOXX 30 for some ugly numbers. Here’s a look at changes in rolling forward EPS and sales estimates among analysts polled by FactSet for the 12 largest U.S.-listed makers of semiconductors or related equipment (by market value) since the end of June:
Click on the tickers for more about each company, including analysts’ ratings and the latest financial results and corporate guidance that have driven the estimate revisions. Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on MarketWatch quote pages.
For the chip makers, 2022 has been difficult as industry-supporting trends of the previous two years have reversed. Pandemic-era stimulus, consumer habits and supply shortages worked in the industry’s favor or at least supported price increases.
The table above has some notable cuts in EPS and sales estimates:
All but four of the largest 12 SOXX companies have had their EPS and sales estimates increase since the end of June.
Looking again at the full SOXX 30, these 12 companies have bucked the trend since the end of June, with consensus earnings and sales estimates both increasing:
(The market caps are not included in the table, in order to reduce its width. You can see the companies’ market caps if you click on the tickers.)
Taiwan Semiconductor Co. (2330.TW) is the largest U.S.-listed chip maker by market cap, although Nvidia had that distinction before its share price fell 54% in 2022. TSM itself is down 33% this year.
Have semiconductor stocks fallen enough?
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09-06-22 1419ET
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