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Advanced Micro Devices Inc. stock fell for the second day in a row
Advanced Micro Devices Inc. (AMD) fell for the second day in a row after Bank of America Corporation (BAC) analyst Vivek Arya lowered his price forecasts for the semi-conductor industry.
BAC analyst Vivek Arya cut his price objective on AMD from $160 to $110 on Wednesday, but he maintained his buy recommendation on the stock. Arya appears to be positive on AMD in comparison to the rest of the industry, but the AMD price target drop was part of a larger sector downgrade that included NVIDIA Corporation (NVDA), which has also remained a buy. However, these two did rather well; Arya actually dropped his recommendations for numerous other semi-names to neutral or underperform, thus AMD may have performed better in his study than its sector counterparts.
The basis for the sector wide reduction was simple macroeconomics, since Arya expects a semiconductor down cycle as a result from a downturn in GDP or a recession. "All-in, we lower our CY22E semi sales forecast to $608 billion (9.5% year over year vs. 13% prior) and CY23E to $604 billion (-1% year over year vs. 7% prior)," he wrote. "This includes a -4% year over year decline in non-memory chips, similar to previous periods of 2-3% global GDP growth, which is likely to be the case next year."
In the meanwhile, the first-quarter U.S. GDP figures were lowered down somewhat today in their third adjustment, showing a 1.6% drop vs. the initial 1.5% projection. The slightly lower estimate comes despite central bankers actively raising interest rates to combat inflation, which some investors believe would lead to a recession.
A recession would undoubtedly be bad for any sector of the economy, but semiconductors have historically been more economically sensitive than others. However, semiconductor investors should take heart in the fact that even Arya believes a semi slump will be less severe than previous downturns. "Since 1995, the average semi downturn has produced a sales decline of about 9%, including 15% in memory but only 5% -7% in non-memory, core semis," he continued. "Today, while a macroeconomic slowdown can cause unit weakness, we do see unique pricing leverage providing some support for semis relative to historical levels."
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