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Goldman Sachs Says Falling Chip Demand Could Impact These Stocks

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Micron stock fell on September 12

Last week, investment bank Goldman Sachs (GS) warned investors about the declining demand for memory chips. Goldman Sachs lowered Micron’s (MU) rating from “buy” to “neutral.” Goldman Sachs analyst Mark Delaney expects “incrementally weaker demand datapoints combined with accelerating supply growth” in the last quarter of 2018 and the first half of 2019.

Delany expects an incremental oversupply of DRAM (dynamic random access memory) memory chips in the first half of 2019 as well as weak fundamentals in flash memory. Micron stock fell over 5% on September 12. Peer semi-conductor companies including Analog Devices (ADI) and Qualcomm (QCOM) also fell over 2% that day after Goldman Sachs’s report.

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Chip stocks have been impacted recently

Semiconductor stocks have declined recently after an impressive rally in 2016 and 2017. The semiconductor industry is a cyclical industry and it looks like companies are struggling with revenue growth due to slowing memory chip demand.

Earlier this month, Morgan Stanley (MS) confirmed that KLA-Tencor (KLAC) expects demand in memory chip to be lower than previously estimated. KLA-Tencor has declined over 10% since the start of September 2018.

In comparison, Micron (MU), Western Digital (WDC), and Seagate (STX) have generated returns of -15%, -10%, and -8%, respectively, since the start of September.

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