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Dealing with semiconductor stocks in times of slowdown

With the semiconductor industry showing signs of cooling off – thanks to the demand crunch and tariff crisis – the market sentiment towards chip stocks is not very optimistic. While shares of the leading chipmakers witnessed notable declines in the second half of the year, the trend offers a bankable investment opportunity.

Market watchers are of the view that Nvidia (NVDA), Intel (INTC) and Advanced Micro Devices (AMD) have the tendency to maintain the downtrend for the rest of the year. Short-term investors should be watchful of the high volatility before going for these chip stocks.

While shares of all the leading chipmakers witnessed notable declines in the second half of the year, the trend offers a bankable investment option

Nvidia, the latest among the trio to report quarterly results, is bracing for a lackluster start to the new year. The softness in demand for Nvidia’s flagship GPU, amid the deepening slump in gaming and crypto sectors, is estimated to continue in the next couple of quarters. The below-consensus third-quarter results and weak estimate for the upcoming quarter had sent the company’s stock downhill this week.

The muted outlook indicates that Nvidia’s upbeat datacenter business might not be able to offset the negative aspects, including the China factor. Those who did not buy the stock before the earnings release should be a happy lot. While the near-term price target ranges from $155 to $145, some researchers think ‘now’ is the time to buy.

Intel’s strong fundamentals make it the all-time favorite of investors, offering good returns and decent dividend growth. Product innovation that is ahead of its time and resilience to the growing competition helped the company come up with strong results for the most recent quarter. Hovering near the $50-mark, the stock’s low price and high volumes promise long-term benefits to investors. Going into 2019, the company is expected to sustain the positive momentum.

In the case of AMD, the softness in demand was clearly visible last quarter when the company’s revenues and guidance missed estimates, expediting the stock’s descent from the recent peak. It is estimated that the overheating crypto market and trade war will continue to drag the top-line performance in the upcoming quarter.

So, it is time to wait and watch until the price drops further in the coming weeks. Those who already hold the stock without long-term intentions could be at risk, considering the present downtrend. A rebound is inevitable by mid-2019, but the pace will depend largely on the chances of the crypto market stabilizing and the trade tension getting resolved.

After suffering the biggest ever intraday loss, Nvidia shares were trading down 18% Friday. Intel lost about 15% after hitting an 18-year high in June but gained 8% since the beginning of the year. AMD’s stock, which gained about 72% since January, traded sharply lower today.

 

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