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Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD) shares have struggled in recent days, but Bank of America said any concerns about the weak PC market «could already be baked-in» to their stocks.
In a note previewing the broader chip sector, analyst Vivek Arya pointed out that weakness in the PC is now «well known,» but any more concerns from Europe due to the war, as well as Covid-related concerns from China could push down PC demand further in the second quarter.
«However we believe mix (towards enterprise and away from low-content Chromebooks) would provide a tailwind (Q1 PC ex-Chromebooks were actually up 3% [year-over-year]),» Arya wrote.
The analyst added that Intel (INTC) is «more exposed» than AMD (AMD) to a slowing PC market, but the Pat Gelsinger-led company guided conservatively when it last reported. Conversely, AMD (AMD) has a number of other «positive levers,» including the Xilinx addition, console demand and strength in cloud computing.
Looking at the semiconductor industry as a whole, especially when viewed through the lens of Taiwan Semiconductor’s (TSM) first-quarter results, Arya pointed out that «investors are unwilling to look past current macro turmoil» and are now willing to pay a premium for hard cyclical assets such as materials and energy, but have dumped tech stocks, in particularly silicon chips, despite a «rapidly digitizing global economy.»
«Investor pessimism is rampant (BofA FMS survey shows growth optimism at all-time low) which could create an enhanced Buy [opportunity] for our top Cloud [names like] Nvidia (NVDA), Marvell Technologies (MRVL), Cars [names like] On Semiconductor (ON), [Analog Devices] (ADI) and capital expenditure [names like] KLA Corp (KLAC) and Global Foundries (GFS) beneficiaries.»
In addition, Arya wondered whether growth in semiconductor capital equipment names is slowing or delayed into 2023, as a 3-5% sales miss in the March quarter and June guidance is «widely expected,» citing the impact of the China lockdowns on supply disruption. Spending on wafer fab equipment is likely to be $90B-95B in 2022, down from current outlook of $100B-105B.
Arya also noted that the demand outlook for auto-related semiconductor companies, such as Texas Instruments (TXN), On Semiconductor (ON), NXP Semiconductors (NXPI) and Microchip Technology (MCHP) is «solid,» citing recent results from Analog Devices (ADI).
«With 10%+ [year-over-year] pricing tailwind, we see no reason why auto/industrial vendors cannot sustain at-least 10-15% [year-over-year] CY22 sales growth, suggesting upside to [Texas Instruments] Q1 report,» Arya pointed out.
Semiconductor companies like Qorvo (QRVO), Skyworks Solutions (SWKS) and to some extent, Qualcomm (QCOM), are likely to be most impacted from the slowdown in the Chinese smartphone market, as well as Apple (AAPL), though Arya cautioned it is a «seasonally weaker part of the year.»
Earlier this month, Citi said chip giant Intel (INTC) may start to experience some headwinds as PC shipments continue to come in below the firm’s estimates.
