Chip Stocks Fall on Fears of a Two-Year Growth Trend Slowdown
NVIDIA and Applied Materials published their latest earnings results on August 16. Their weaker guidances have spooked investors.
Aug. 18 2020, Updated 5:19 a.m. ET
NVIDIA and Applied Materials report weaker guidance
NVIDIA (NVDA) and Applied Materials (AMAT) published their latest earnings results on August 16. Both companies reported better-than-expected earnings for the quarter but weaker-than-expected guidance for the quarter to come.
Weaker guidances from these two companies, which have been beating analysts’ estimates for over two years, have added to investors’ fears that the semiconductor growth cycle may be slowing.
AMAT stock falls
AMAT’s earnings sent the stocks of AMAT and its peers KLA-Tencor (KLAC) and Lam Research (LRCX) down 9.2%, 3%, and 3.5%, respectively, at the start of the day on August 17. These stocks fell as AMAT reported weakness in semiconductor capital spending.
AMAT is the world’s largest supplier of semiconductor manufacturing equipment. Its earnings are used to determine the overall health of the semiconductor industry.
On its fiscal third-quarter earnings call, AMAT’s CEO Gary Dickerson stated that its foundry partners would be reducing their 2018 capital spending to optimize their existing capacity. He expects NAND (negative-AND) capital spending to remain flat or fall modestly in 2018.
According to Bloomberg, RBC Capital Markets analyst Mitch Steves believes that AMAT’s investors could remain cautious until the memory market improves. The stocks of AMAT’s customers Texas Instruments, Intel, and Micron fell modestly between 1% and 1.6% at the start of the August 17 trading session.
NVIDIA stock falls
On the other hand, NVIDIA stock fell 4.5% on the back of its weaker guidance for the coming quarter, increasing investors’ fears that its two-and-a-half-year growth cycle is slowing. However, analysts believe that this weakness is just temporary and that the company’s earnings growth will pick up with the launch of its rumored next-generation gaming GPU (graphics processing unit).
The falls in the above-mentioned stocks pulled the VanEck Vectors Semiconductor ETF (SMH) down 1.5% at the start of the August 17 trading session.
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