The semiconductor party has morphed into a hangover. With the broad ETF about 13% off the highs and many individual names down 2% or more today after a sluggish last few weeks, it begs the question where folks should put their money in the sector.
Taiwan Semiconductor (TSM) dropped a bit of a bombshell on the market today as the company missed earnings per share by a penny with revenue that also fell short of expectations. The company is the world's largest contract chipmaker drawing 20% of its revenue from Apple (AAPL) . Naturally, concerns about iPhone shipments have triggered selling in Apple as well as its providers. There's logic in this, but if something like Cirrus Logic (CRUS) gets into low $30's or high $20's, I would pursue it aggressively.
TSM extends beyond AAPL though as both Nvidia (NVDA) and Qualcomm (QCOM) are clients. QCOM is getting hit with a double-whammy as concerns about its ability to buy NXP Semiconductors (NXPI) mount. The companies withdrew and refiled their acquisition plans based on objections from MOFCOM (Ministry OF COMmerce of China). Political tensions continue to weigh on companies and these two are no different. As tariffs and trade wars have claimed ZTE (ZTCOY) already as a victim, Qualcomm could be next. The company relies heavily on business in China. NXPI appears to be the better play here and I find it attractive below $110, but especially under $105. Qualcomm appears headed to $50, so I'd wait for that test before acting.
Lam Research (LRCX) continues to spiral, but the selloff feels unwarranted. The company reported earnings of $4.79 per share against estimates of $4.38 on revenue of $2.89 billion. The company also guided next quarter's revenue and earnings per share above expectations. The driving concern is shipments, specifically related to NAND, were guided lower. I view this as a bigger issue for Micron (MU) and would be more hesitant to own MU here than LRCX. If $190 fails for LRCX, there isn't much support for another $15, but I'd keep a close eye on it for an entry.
Micron, meanwhile, has its hopes pinned on the continued, insatiable demand for DRAM in PCs and data centers. Some of this demand, similar to NVDA and TSM, is drawn from crypto miners. As prices for Bitcoin, Ethereum, and the likes have stabilized more than 50% off winter highs, the cost to mine is starting to outweigh the value of the currencies. It is quite possible, we'll see a cooling in demand for mining related products, if we haven't already. It's another possibly negative catalyst for MU here.
After the news of the last few days, I'm leaning more toward names like LRCX, Intel (INTC) , Rambus (RMBS) , and NXPI as the bigger semiconductors I see with favorable risk versus reward. But until we get some reinforcement that demand is not slowing, it might be tough sledding for the next month.
