Nvidia, AMD lead chip decline as Truist finds 'hard evidence of order cuts'
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Nvidia (NASDAQ:NVDA), Advanced Micro Devices (AMD) and Broadcom (AVGO) led declines across the semiconductor industry, as investment firm Truist slashed price targets across the board, telling investors it has found "hard evidence of order cuts."
Analyst William Stein said that he learned of a "sudden negative shift" in demand for a number of manufacturers, including those for computing, consumer and communications to "some" of their semiconductor suppliers.
While first-quarter results are likely to remain strong for the semiconductor industry, and perhaps even second-quarter guidance, cracks are starting to form for the second-half of the year and 2023.
Stein added that two of his industry contacts are seeing order cuts, with both saying that the cuts are related to second-quarter production, but second-half demand is still "robust."
"While a one-off quarter adjustment is possible, we stick to the adage we developed while selling components during the tech bubble: 'today's push-out is tomorrow's cancel,'" Stein wrote in a note to clients.
Stein lowered his price targets across the board, including cutting Nvidia to $298 from $347, lowering AMD to $111 from $144 and dropping Intel to $49 from $53, citing lower earnings multiples.
Nvidia (NVDA) shares fell more than 3.5% to $233.52, while AMD (AMD), Broadcom (AVGO) fell more than 2%. Other chip companies, such as Intel (INTC) and Texas Instruments (TXN) declined less than 1%.
Stein noted that it's not yet clear what the reasoning is for the cuts, but it's important nonetheless. It could be the cuts are due to incomplete kits and a simple desire to balance inventory, while another view is that although demand is still strong, a temporary delay is starting to cause the cuts.
The most bearish view would be that there is demand destruction taking place and when coupled with additional supply is leading to a chip glut and traditional downturn.
"We remain constructive on the structural growers Nvidia and Monolithic Power Systems (MPWR), but recognize that near-term stock price effects may become more volatile given the elevated P/Es ascribed to these growth models," Stein explained.
In February, Bank of America said Nvidia (NVDA) and AMD (AMD) were likely to continue reaping the benefits of the upgrade cycle in the graphics chip market, adding that the second-half of the year should see stronger growth, as supply and mix improve.