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Deep Dive: 12 semiconductor stocks bucking the downcycle trend

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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
SOX
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:

Current forward P/E

Closing price – Sept. 2

Consensus EPS estimate – NTM

Forward P/E – June 30

Closing price – June 30

Consensus EPS estimate – NTM – June 30

13.9

$358.85

$25.73

12.6

$349.61

$27.75

Source: FactSet

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:

Company

Ticker

Change in EPS estimate

EPS estimate – NTM

EPS estimate – NTM – June 30

Change in sales estimate

Estimated sales – NTM ($bil)

Estimated sales – NTM – June 30 ($bil)

Taiwan Semiconductor Manufacturing Co. Ltd. ADR

TSM

5%

$6.27

$5.97

4%

$79,992

$77,099

Nvidia Corp.

NVDA

-31%

$4.04

$5.88

-16%

$30,071

$36,005

Broadcom Inc.

AVGO

3%

$40.23

$39.23

2%

$34,878

$34,204

ASML Holding NV ADR

ASML

-8%

$18.06

$19.69

-5%

$24,505

$25,706

Texas Instruments Inc.

TXN

2%

$9.09

$8.88

2%

$19,893

$19,583

Qualcomm Inc.

QCOM

-1%

$12.98

$13.08

-1%

$46,838

$47,269

Advanced Micro Devices Inc.

AMD

3%

$4.67

$4.54

3%

$28,641

$27,907

Intel Corp.

INTC

-26%

$2.57

$3.47

-11%

$68,033

$76,143

Applied Materials Inc.

AMAT

-4%

$7.98

$8.31

-3%

$26,215

$27,097

Analog Devices Inc.

ADI

-2%

$9.64

$9.82

-1%

$12,135

$12,259

Micron Technology Inc.

MU

-51%

$5.18

$10.67

-27%

$26,976

$37,165

Lam Research Corp.

LRCX

-1%

$37.29

$37.83

-2%

$19,045

$19,417

Source: FactSet

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:

Nvidia Corp.’s
NVDA
rolling consensus 12-month EPS estimate has declined by 31% since the end of June, while its consensus 12-month sales estimate has fallen by $5.9 billion, or 16%.

Intel Corp.’s
INTC
consensus EPS estimate is down 26% since the end of June, while its sales estimate has dropped $8.1 billion, or 11%.

Micron Technology Inc.’s
MU
EPS estimate has declined 51% since June 30, as its sales estimate has plunged by $10.2 billion, or 27%.

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:

Company

Ticker

Change in EPS estimate

EPS estimate – NTM

EPS estimate – NTM – June 30

Change in sales estimate

Estimated sales – NTM ($bil)

Estimated sales – NTM – June 30 ($bil)

Taiwan Semiconductor Manufacturing Co. Ltd. ADR

TSM

5%

$6.27

$5.97

4%

$79,992

$77,099

Broadcom Inc.

AVGO

3%

$40.23

$39.23

2%

$34,878

$34,204

Texas Instruments Inc.

TXN

2%

$9.09

$8.88

2%

$19,893

$19,583

Advanced Micro Devices Inc.

AMD

3%

$4.67

$4.54

3%

$28,641

$27,907

Marvell Technology Inc.

MRVL

1%

$2.61

$2.58

1%

$6,717

$6,628

Microchip Technology Inc.

MCHP

4%

$5.70

$5.47

3%

$8,199

$7,979

STMicroelectronics NV ADR RegS

STM

10%

$3.70

$3.36

5%

$16,381

$15,642

ON Semiconductor Corp.

ON

2%

$4.99

$4.90

2%

$8,313

$8,141

Monolithic Power Systems Inc.

MPWR

8%

$13.73

$12.67

6%

$2,018

$1,898

Entegris Inc.

ENTG

2%

$4.66

$4.55

30%

$3,819

$2,938

Wolfspeed Inc.

WOLF

366%

$0.47

$0.10

11%

$1,157

$1,038

Lattice Semiconductor Corp.

LSCC

9%

$1.88

$1.73

5%

$707

$676

Source: FactSet

(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.
TSM
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?

The semiconductor industry group tends to ride higher and fall harder than the U.S. stock market does. Here’s a three-year chart comparing total returns for SOXX and the SPDR S&P 500 Trust
SPY
:

Even with this year’s brutal decline for semiconductor stocks, the group has outperformed the S&P 500 by wide margins for 3, 5, 10, 15 and 20-year periods.

FactSet

The three-year chart illustrates the semiconductor group’s high volatility over short periods — not only this year, but in March, April and May 2021, when SOXX had two large oscillations while the SPY chart remained fairly smooth, sloping up.

For long-term, committed investors, SOXX has outperformed for various periods:

 ETF

Average return – 3 years

Average return – 5 years

Average return – 10 years

Average return – 15 years

Average return – 20 years

iShares Semiconductor ETF

21.8%

20.1%

22.4%

13.1%

12.8%

SPDR S&P 500 ETF Trust

12.1%

11.5%

12.9%

8.9%

9.6%

Source: FactSet

So now the question is whether semiconductor stocks have already baked-in the industry slowdown.

If we look at Nvidia, even with this year’s share-price decline of 54%, the stock’s forward price-to-earnings ratio is 33.7, compared with forward P/E ratios of 14 for SOXX and 16.7 for SPY. All of those valuations are down this year, and SOXX itself trades at a notable discount to SPY.

Might there be a bounceback in the works for semiconductor stocks over the next 12 months? Such drastic declines in estimates for some of them might begin to reverse.

Analysts expect these stocks to roar back

Going back to the full list of 30 SOXX companies, there are 14 for which at least three-quarters of analysts polled by FactSet rate the stocks a “buy” or the equivalent. Here they are, sorted by 12-month upside potential implied by consensus price targets:

Company

Ticker

Share “buy” ratings

Closing price – Sept. 2

Consensus price target

Implied 12-month upside potential

Synaptics Inc.

SYNA

82%

$112.88

$190.50

41%

Marvell Technology Inc.

MRVL

88%

$45.76

$75.01

39%

MKS Instruments Inc.

MKSI

83%

$97.13

$157.70

38%

Entegris Inc.

ENTG

92%

$92.08

$145.08

37%

Nvidia Corp.

NVDA

76%

$136.47

$207.55

34%

Lattice Semiconductor Corp.

LSCC

80%

$52.25

$75.13

30%

Applied Materials Inc.

AMAT

77%

$91.24

$130.50

30%

Universal Display Corp.

OLED

75%

$106.60

$151.91

30%

Taiwan Semiconductor Manufacturing Co. Ltd. ADR

TSM

95%

$80.90

$110.36

27%

ASML Holding NV ADR

ASML

81%

$467.19

$636.83

27%

Monolithic Power Systems Inc.

MPWR

85%

$424.42

$574.33

26%

Micron Technology Inc.

MU

81%

$56.33

$75.13

25%

Broadcom Inc.

AVGO

88%

$500.22

$664.29

25%

ON Semiconductor Corp.

ON

75%

$67.51

$75.80

11%

Source: FactSet

For Intel, only 22% of analysts polled by FactSet rate the shares a buy, while there are 54% neutral ratings and 24% “sell” or equivalent ratings. That said, the consensus price target for Intel is $38.35, which is 23% higher than the stock’s closing price of $31.22 on Sept. 2.

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