AMD outperforms US semiconductor industry
The US-China trade war has significantly impacted the semiconductor industry. The VanEck Vectors Semiconductor ETF (SMH) was down 14.3% month-to-date on May 29. While companies with large exposure to China underperformed the SMH, those with less exposure to China outperformed.
Advanced Micro Devices (AMD) was an outlier among all semiconductor stocks, growing 4.8% month-to-date. The stock rose as the company launched its next-generation 7-nm (nanometer) products, which will likely help it increase revenue by gaining market share from Intel. AMD earns 11% of its revenue from China. It has halted shipments of PC processors to Huawei after the United States announced a trade ban on the Chinese firm. As Huawei is a small player in the PC market, the ban will not have a significant impact on AMD’s revenue.
AMD stock has so far been the best performer of 2019, growing 52% YTD. This growth comes as it is one of the few chip companies that’s guiding for YoY revenue growth of 7% to 9% for full-year 2019 at a time when demand is uncertain. AMD’s stock will fall steeply if the company lowers its full-year guidance in the coming quarters.
Chip companies least impacted by the US-China trade war
After AMD, Applied Materials (AMAT) outperformed the SMH by falling 9.2% month-to-date as against SMH’s 14.3% decline. The slightly better performance came as AMAT maintained its full-year guidance of mid-to high-teen percentage YoY decline in semiconductor spending after taking into consideration the higher tariffs and Huawei ban. Investors were expecting worse.
Xilinx (XLNX) is another growth story. It is one of the few chip companies reporting YoY revenue growth, which drove the stock to new highs in the first four months of 2019. However, the Huawei ban and trade tensions have erased some of the stock’s growth, but the stock is still trading 20% above its price on December 31, 2018.
The above three companies might be able to withstand the trade war and remain profitable.