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Chip Stocks Underperform as Semiconductor Industry Faces Steep Losses

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The semiconductor industry has experienced 11 consecutive months of significant losses compared to the previous year, resulting in underperformance of chip stocks in the market. In May, global chip sales decreased by 21.1% to $40.7 billion, marking a decline from April 2022’s $51.7 billion, as reported by the Semiconductor Industry Association (SIA) on Thursday.

John Neuffer, the CEO of SIA, stated that despite the ongoing sluggishness of the market when compared to 2022, global semiconductor sales have shown marginal improvement for the third consecutive month in May. This slight upward trend has sparked optimism for a potential market rebound during the second half of the year.

On Thursday, the PHLX Semiconductor Index (SOX) experienced a 1.3% decline, while both the S&P 500 and the tech-heavy Nasdaq Composite Index closed down by 0.8%.

SIA predicts a 10.3% decrease in chip sales for 2023, followed by an anticipated rebound of 11.9% growth in 2024, based on data from World Semiconductor Trade Statistics forecasts.

Year to date, the SOX index has recorded a 41.3% increase, surpassing the gains of the Nasdaq (30.7%) and the S&P 500 (nearly 15%).

Among the large caps, Nvidia Corp. (NVDA) stands out as a significant gainer in the chip sector, with its shares rallying by 178% in 2023. Nvidia’s success can be attributed to its promising prospects in capitalizing on artificial intelligence models such as Microsoft Corp.-backed OpenAI’s ChatGPT.

Technology Stocks Show Strong Performance

Several technology companies have seen significant growth in their stock prices this year. Advanced Micro Devices Inc. (AMD) has rallied 50.6%, Marvell Technology Inc. (MRVL) shares have gained 58.8%, and Lam Research Corp. (LRCX) is up 47.8%. ON Semiconductor Corp. (ON) has also experienced a 48.5% increase, while Broadcom Inc. (AVGO) has grown by 51.7%.

Citi Research analyst Christopher Danley acknowledges the rising sales growth and pricing in the sector but remains cautious overall. He considers memory-chip maker Micron Technology Inc. (MU) as his top pick and expects other analog companies to lower their outlook due to an inventory correction over the summer.

Micron recently reported earnings and expressed confidence in the memory-chip market’s future, calling it a bottom.

Read: Micron CEO calls bottom in memory-chip market, but weak PC, smartphone forecasts cut into expected AI gains

Evercore ISI analyst C.J. Muse also maintains an optimistic outlook. His top picks include Nvidia, Marvell, and Broadcom, and he projects industry sales of $420 billion for the year, excluding memory sales.

In terms of stock performance, Intel Corp. (INTC) shares have risen by 21% year to date. Taiwan Semiconductor Manufacturing Co.’s ADRs (TSM) have experienced a 33.5% increase. On the other hand, Texas Instruments Inc. (TXN) shares have only risen by 5.8% this year, while Qualcomm Inc. (QCOM) shares are up by just 4.8%.

Outside of the semiconductor industry, PC maker Dell Technologies Inc. (DELL) has seen a 33.8% increase in its share price for the year, while HP Inc. (HPQ) shares are up by 15%.

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