Just as the semiconductor industry was poised to spring back from a cyclical downturn, the Covid-19 coronavirus pandemic is threatening its recovery.
Some segments of the semiconductor industry remain healthy, such as those exposed to cloud-computing data centers, analysts say. Other segments, such as consumer electronics and automotive, are at greater risk from negative impacts from the pandemic and any resulting recession, they say.
This week, Wall Street analysts have been picking which chip stocks are best and worst positioned in the current environment.
"We are concerned that global chip shipments might be impacted not just by the supply-chain disruption caused by the Covid-19 lockdowns but also by the associated economic fallout on demand," Nomura Instinet analyst David Wong said in a note to clients Wednesday.
Semiconductor Industry Growth Predictions Cut
Wong has cut his 2020 chip growth projections three times in the last several weeks. He now expects global semiconductor sales to rise 3% in 2020. Last year, global semiconductor sales dropped 12% from the prior year.
"We believe that all chip end markets will be impacted, but that discretionary consumer-centric end markets (including a substantial portion of the automotive market) will be affected the most," Wong said.
Intel and AMD get much of their sales from the data-center and personal-computer markets. Xilinx is tied to infrastructure markets including data centers and 5G wireless systems.
On the flip side, Wong sees greater risk for Nvidia (NVDA) and Texas Instruments (TXN). Nvidia gets over 50% of its sales from computer gaming and automotive. TI gets over 40% of its business from personal electronics and automotive, he says. Wong rates Nvidia stock as reduce and TI stock as neutral.
Covid-19 To Have Significant Impact On Chip Sales
On March 18, research firm IDC warned that Covid-19 will have a significant impact on the worldwide semiconductor industry in 2020. It estimated a nearly 80% chance for significant contraction in worldwide semiconductor revenues in 2020. IDC previously expected minor overall growth of 2%.
The most likely outcome now from Covid-19 disruptions on the semiconductor industry is a year-over-year drop in sales of 6% in 2020, IDC said.
"The emergence of Covid-19 has brought with it travel bans and quarantines, massive slowing of the supply chain, uncertainty in the stock market, falling business confidence, and growing panic among the population," analyst Mario Morales said in a news release.
Morales notes that the semiconductor industry will play a vital role in the eventual economic recovery.
"Emerging technologies like 5G, the Internet of Things, high-performance computing, and intelligent edge will be fundamental to an overall recovery by the technology sector," he said.
Nvidia, Monolithic Power Systems Called Top Investment Ideas
On Thursday, SunTrust Robinson Humphrey analyst William Stein reiterated his buy ratings on Nvidia, Broadcom (AVGO) and Monolithic Power Systems (MPWR). He said Nvidia and MPS are his top long-term investment ideas in the semiconductor industry.
"We continue to believe data center was already strong entering the year, and may (like notebooks) incrementally benefit from the current work/game/school-from-home trend," Stein said in a note to clients. "Our favored investment in this theme remains Nvidia."
Elsewhere, the Semiconductor Industry Association has sent letters to the Trump administration and federal officials urging them to designate semiconductor businesses as "essential" so that their U.S. operations can continue amid state and local coronavirus shutdowns.
During a broad rally on the stock market today, Broadcom stock jumped 11.8% to 243.17. Monolithic Power Systems surged 10.4% to 174.78. Intel rose 8.4% to 55.54. AMD popped 6.4% to 47.50. Xilinx increased 7% to 80.28. Nvidia climbed 4.7% to 257.24. Texas Instruments advanced 8.7% to 107.76.