AMD, Samsung's Warnings Underline Looming Tech Slowdown — But This Analyst Sees Pockets Of Strength

Advanced Micro Devices Inc. AMD shares moved sharply to the downside in after-hours trading on Thursday after the chipmaker warned of a revenue shortfall.

What Happened: AMD's predicament isn’t likely to be a one-off event. South Korean electronics and chip manufacturer Samsung, on Friday, pre-announced that its third-quarter operating profit will likely come in at 10.8 trillion won ($7.6 billion), down about 32% year-over-year, and 23.4% lower than in the previous quarter. If the estimates are confirmed when the chip major reports its final quarterly results, it would mark its first sequential decline in three years.

The company also forecasts only a modest year-over-year sales increase to 76 trillion won.

Memory chipmaker Micron Technology Inc. MU recently cut its capital spending by as much as 30% year-over-year after it warned on its earnings call in June that consumer demand is slowing due to geopolitical tensions and rising inflation. The company flagged a decline in smartphone shipments and weakness in the PC market in 2022.

This was echoed by AMD on Thursday when the chipmaker said client segment revenue could trail its expectations due to reduced processor shipments, stemming from the weaker-than-expected PC market and inventory correction across the PC supply chains.

The upcoming weeks will tell whether there are more skeletons in the cupboard.

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KeyBanc Takes Down AMD Price Target: Reacting to AMD’s negative preannouncement, KeyBanc Capital Markets analyst John Vinh reduced his price target for AMD shares from $130 to $100 but maintained an Overweight rating.

To reflect AMD’s guidance cut, Vinh lowered his fourth-quarter revenue and earnings per share estimates from $7.24 billion and $1.20, respectively, to $5.9 billion and $0.79. The 2023 estimates stand reduced from $29.6 billion and $4.93 to $24.7 billion and $3.70, respectively.

Tech Weakness May Not Be Broad-based: Wedbush analyst Daniel Ives compared the negative sentiment that prevails toward tech stocks to what was seen only two times in his decades of covering tech stocks — in 2001 and 2008.

The downside triggers, according to the analyst, are Fed’s hawkishness, fears of a looming recession, softer consumer/enterprise spending and fears around third-quarter earnings season and negative revisions.

Ives said the third-quarter reporting season would either “expose the negative underlying fundamentals” in the tech space or prove that the bearishness and warnings of the demise of growth tech were premature. He sees the stronger dollar posing 150-200 basis points of incremental headwinds for the tech stalwarts.

Enterprise software and cybersecurity were holding up, the analyst noted.

“On the contrary, we believe 3Q EPS season will be a positive catalyst for tech stocks and ultimately prove out that fundamentals in pockets of software, cyber security, and some other areas of tech,” Ives said.

Price Action: The Technology Select Sector SPDR Fund XLK closed Friday’s session down $125.95, down 0.82%, according to Benzinga Pro data.

For the year, the exchange-traded fund has lost about 27%. This compares to the 35% year-to-date decline for the chip-sector-focused iShares Semiconductor ETF SOXX.

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