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Goldman Warning Causes Chip Stocks Fall

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Chip stocks fell on Friday, following Goldman Sachs, along with another brokerage’s warning to its clients that the industry’s 2019 recovery seems excessive than the expectations on chip demand.

Mark Delaney says in writing, “Our recent industry discussions suggest that memory fundamentals remain very soft, and prices continue to decline.” He also wrote that it is different from a significant recovery in HDD and memory stocks from the beginning of the year even on weak fundamentals.

The chip manufacturing companies that get affected are Nvidia, which fell 1.3 percent; Applied Materials and Advanced Micro Devices both fell 1.2 percent, Micron slipped 2.6 percent, Lam Research declined 0.8 percent, iShares PHLX Semiconductors shed 1 percent. On the other hand, VanEck Vectors Semiconductors ETF climbed 0.18 percent last week, the company ’s fifth weekly gain streak, which is its first time from its previous streak in August.

“We now believe that EPS scenarios that investors considered unlikely six months ago when memory started to roll are rising in probability,” Delaney continued. “For example, we believe that the $3.00 to $4.00 downside case EPS scenario that we published in our Micron downgrade note last September is now a base case,” he added.

The warning made by Goldman comes in the middle of recovery in chipmaker stocks, that have covered a steep decline in December and have gained double-digits since the beginning of the year. The distress arose in the semiconductor industry in late 2018 while the U.S. and China are having some general concerns and a trade war around the economic growth of China. The demand also dropped between weaker sales of the iPhone and a decline in ventures from cryptocurrency mining.

While those worries decreased in the last days of 2018 going to a new year, Goldman Sachs and others have warned that the agony may not have done so far. “Our near-term caution about being too early on memory is not just about avoiding catching a falling knife, but also the fact that upturns typically last for a year or longer,” Delaney added. “It’s only the second quarter of the DRAM downturn, and while NAND has been weak for several quarters there are still high levels of NAND inventory and demand in key markets like smartphones is quite weak.”

Meanwhile, evaluating on the chipmaker industry on Friday was the quarterly income report from Qorvo, a semiconductor company based in Greensboro, North Carolina. Although the company was the highest at the analyst income projection in the third quarter, the company got $1.05 offering for the fourth-quarter income guidance which is lower than the consensus projection of $1.33. It was reported when the market closed on Thursday.