Samsung & TSM crushed- Chip cycle conclusion? First Domino or fake news?
Samsung's stock was down in the Korean market by roughly 5% which took the entire Korean index down 1.4% based on a downgrade by Morgan Stanley to equal weight. TSM was also downgraded and down 2.5% in the same report. Weakening memory was cited as the reason for the downgrade along with a reduced outlook.
We certainly agree that memory has slowed but the real question is whether or not this is a cycle peak after a long run or a seasonal pause on a long secular uptrend.
The sharp drop on one soft analyst report underscores our much repeated view that the stocks remain very "twitchy" given the strong gains over the past years. Investors are ready to take profit rather than risk riding the cycle back down. End of year and beginning of next year has historically been a weak season for chips as we are past peak holiday demand for devices as any devices made from the end of November on, don't make it into stores before holiday season is over.
So a key question is whether this is the beginning of the end of the cycle or a normal seasonal pattern? Investors need to be aware of the second and third order derivative plays that will be impacted and how we can expect to see fall out...
Bad day for chip & chip equip stocks - A reset? Is this about valuation gone too far or fundamentals? Twitchy fingers pull the "sell" trigger
We wrote a note 3 days ago about investor concerns of the cycle rolling over as well as investors twitchy behavior given the gains we have experienced in chip stocks. The first dominoes to fall were Samsung & TSM on Monday as Morgan Stanley wrote a soft downgrade on memory concerns.
Today we saw essentially what we talked about, played out, in living color, all of it red on my stock screen, as the stocks took a tumble. Not much has changed in reality over the last few days only perception has changed.
We have to ask if the stocks went too far too fast. Is this a reset of overhyped valuations or the start of a longer negative trendline?
We also have to remember that perception rules the stock market, less so reality. The other driver of Wall Street is clearly the herd mentality which doesn't care whether the leaders of the herd were scared by a mouse or a real threat like a lion, it only matters that the herd is stampeding in the opposite direction.
To a large extent we think what we saw today was a bit of an Icarus Effect. In greek mythology, Icarus dared fly too high and too close to the sun on wings glued together with wax that melted when he got too close to the sun and he fell back to earth. Maybe the stocks just flew too high too fast. LRCX over $200, Applied over $55, ASML over $175 or MU approaching $50...
Rather than bounce back the bleeding continues. At what level do we stop this Reset of valuations? Intel top ticks ASML stock (what does this say?)
The chip & chip equipment stocks continued their sell off today. Rather than a bounce we see continued bleeding. As we had suggested in our previous note, we view this as a more ominous sign that investors may be abandoning the group after a very long run. Our recent estimate of a potential 20% hair cut may not be very far off.
Obviously the highest flying stocks have come down the fastest as well. Anything related to memory is suddenly radioactive. As we said in our last note, this remains more of a "perception correction", knee jerk reaction rather than long term investing in the secular growth of memory. Memory price declines are inevitable....it's what Moore's law and the entire industry is all about. Sooner or later supply will exceed demand and like any other supply/demand driven cyclical market there will be a correction. At this point its not even clear that we are in an oversupply condition but investors are reacting to a "perceived " fear.
It's pointless for analysts to argue which direction NAND is headed as the stock declines are not based on NAND decline but rather the fear of NAND decline. Fear and Greed are the two things that drive Wall St. There are still plenty of gains in the stocks to be locked in by selling at even these less than peak levels. Speaking of selling..... Intel may be smarter than almost any technology investor or fund manager...
Samsung's stock was down in the Korean market by roughly 5% which took the entire Korean index down 1.4% based on a downgrade by Morgan Stanley to equal weight. TSM was also downgraded and down 2.5% in the same report. Weakening memory was cited as the reason for the downgrade along with a reduced outlook.
We certainly agree that memory has slowed but the real question is whether or not this is a cycle peak after a long run or a seasonal pause on a long secular uptrend.
The sharp drop on one soft analyst report underscores our much repeated view that the stocks remain very "twitchy" given the strong gains over the past years. Investors are ready to take profit rather than risk riding the cycle back down. End of year and beginning of next year has historically been a weak season for chips as we are past peak holiday demand for devices as any devices made from the end of November on, don't make it into stores before holiday season is over.
So a key question is whether this is the beginning of the end of the cycle or a normal seasonal pattern? Investors need to be aware of the second and third order derivative plays that will be impacted and how we can expect to see fall out...
Bad day for chip & chip equip stocks - A reset? Is this about valuation gone too far or fundamentals? Twitchy fingers pull the "sell" trigger
We wrote a note 3 days ago about investor concerns of the cycle rolling over as well as investors twitchy behavior given the gains we have experienced in chip stocks. The first dominoes to fall were Samsung & TSM on Monday as Morgan Stanley wrote a soft downgrade on memory concerns.
Today we saw essentially what we talked about, played out, in living color, all of it red on my stock screen, as the stocks took a tumble. Not much has changed in reality over the last few days only perception has changed.
We have to ask if the stocks went too far too fast. Is this a reset of overhyped valuations or the start of a longer negative trendline?
We also have to remember that perception rules the stock market, less so reality. The other driver of Wall Street is clearly the herd mentality which doesn't care whether the leaders of the herd were scared by a mouse or a real threat like a lion, it only matters that the herd is stampeding in the opposite direction.
To a large extent we think what we saw today was a bit of an Icarus Effect. In greek mythology, Icarus dared fly too high and too close to the sun on wings glued together with wax that melted when he got too close to the sun and he fell back to earth. Maybe the stocks just flew too high too fast. LRCX over $200, Applied over $55, ASML over $175 or MU approaching $50...
Rather than bounce back the bleeding continues. At what level do we stop this Reset of valuations? Intel top ticks ASML stock (what does this say?)
The chip & chip equipment stocks continued their sell off today. Rather than a bounce we see continued bleeding. As we had suggested in our previous note, we view this as a more ominous sign that investors may be abandoning the group after a very long run. Our recent estimate of a potential 20% hair cut may not be very far off.
Obviously the highest flying stocks have come down the fastest as well. Anything related to memory is suddenly radioactive. As we said in our last note, this remains more of a "perception correction", knee jerk reaction rather than long term investing in the secular growth of memory. Memory price declines are inevitable....it's what Moore's law and the entire industry is all about. Sooner or later supply will exceed demand and like any other supply/demand driven cyclical market there will be a correction. At this point its not even clear that we are in an oversupply condition but investors are reacting to a "perceived " fear.
It's pointless for analysts to argue which direction NAND is headed as the stock declines are not based on NAND decline but rather the fear of NAND decline. Fear and Greed are the two things that drive Wall St. There are still plenty of gains in the stocks to be locked in by selling at even these less than peak levels. Speaking of selling..... Intel may be smarter than almost any technology investor or fund manager...