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The world's second largest semiconductor manufacturer Intel 's stock price fell sharply from its June high, with a drop of more than 20%, making this stock seem attractive. But is this really a buying opportunity? Or does it imply that there is more room for decline ahead?
For this round of decline, before discussing specific issues with Intel itself, investors should note that memory chip demand is highly cyclical. The industry has experienced several booms and busts in the past.
INTC Weekly 1-Year Chart, Market Source: Yingwei Finance Investing.com
Chip Stocks The latest bull market has been driven by new areas of the digital economy, such as the large-scale popularization of smartphones, cloud computing, huge investments in data centers by large global technology companies, and "mining" operations in the cryptocurrency field. Strong demand for memory chips has prompted shares of Intel (NASDAQ:INTC) and its competitors NVDA and AMD (NASDAQ:AMD) to soar in the past three years.
AMD vs. Nvidia (purple) - 3-Year Chart, market source: Yingwei Financial Investing.com
Signs of weakening demand
However, stocks have increased and prices have shown that the recent demand boom is shrinking, and oversupply may soon hit chip manufacturers. These are classic indicators of any industry's downturn.
Nvidia said last month that demand for graphics chips sold to cryptocurrency miners such as Ether is declining much faster than the company expected. Nvidia previously predicted that the sales generated by mining companies' chip purchases in the second quarter will be about US$100 million, while the actual sales will be only US$18 million. The company said revenue from cryptocurrencies related products could disappear altogether.
In addition to Nvidia, chip equipment maker Kelei Semiconductor (NASDAQ:KLAC) said this month that the company is facing a shrinking memory chip shipments, and that the recovery may not be as strong as expected. Kelei Semiconductor's stock price fell about 10% on the day it made this statement.
Micron Technology (NASDAQ:MU) released its after-hours financial report on Thursday showed that the company expects earnings per share in the first quarter of the next fiscal year to $288 to $3.02, with revenue of $7.9 billion to $8.3 billion, lower than expected $3.08 and $8.45 billion. This has once again raised concerns among investors about a decline in product demand.
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Product delay and leadership changes have caused Intel to face trouble
In addition to the deterioration of industry fundamentals, Intel also has its own problems. The biggest factor dragging down Intel's stock price is that it lags behind other competitors in launching new chip technology, and many analysts believe that new chips should be the main growth driver for Intel. Intel said in late July that the 10nm chip will be launched by the end of next year, and markets are concerned that competitors will use the delay to grab market share.
Bank of America Merrill Lynch analyst Vivek Araya downgraded the stock after Intel's announcement, believing that competitors including TSMC (NYSE:TSM), AMD, Nvidia, Xilinx (NASDAQ:XLNX) may surpass Intel by launching low-cost, high-performance chips.
Another factor that prompted investors to remain a wait-and-see attitude was that in June, former Intel CEO 4 Brian Kozanick was forced to leave because he was revealed to have interacted with subordinates and violated company policies, which caused Intel to lose a permanent CEO. This has caused marketers to worry that Intel, in the leadership vacuum, may struggle to overcome manufacturing challenges, while competitors are preparing to challenge the dominance of its computer chips.
However, despite these concerns, Intel continues to grow. The company's latest forecast for the quarterly revenue will grow to about $18.1 billion, surpassing analysts' average expectations. For the fiscal year, Intel is expected to achieve a record $69.5 billion in sales.
summary
Intel shares have fallen nearly 20% from their year-on-year highs and closed at $46.15 yesterday, which makes the stock look cheaper. Intel is more attractive to long-term investors, with a price-to-earnings ratio of about 10.8 times, the lowest since 2015, with a dividend yield of about 2.64%.
However, this attractive valuation poses the biggest risk that chip demand may decline in the future. At the current cycle stage, chip manufacturers have shown signs of hitting the top, and we believe the risk-reward ratio is not enough to be convincing.
If you haven't bought Intel, it's better to wait until the company successfully overcomes the current problem. By then, the supply and demand situation in the industry should improve.
[This article comes from Yingwei Financial Investing.com, follow WX: Yingwei Financial Investing.com. For more information, please log in to cn.Investing.com or download Yingwei Financial Investing App]
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