We had pointed out risks in semiconductor land about a month ago. Since then there’s been a battle in these stocks with rallies getting sold.
Fundamentally we’re bullish in tech and semis. Our work still shows that there is strong demand at the datacenter and the enterprise.
Cloud hyperscalers are still aggressively spending especially with strong Cloud growth. Enterprise customers are really accelerating acceptance of off-prem cloud offerings as we saw with Azure and AWS growth last quarter.
Semiconductor sell-in to these cloud offerings, we’d guess has not slowed despite fears.
Memory Fears Not A Sign Of Tech Weakness
The slowdown in DRAM and NAND prices has spooked investors that there could be a tech slowdown or a semiconductor cycle peak.
We think that memory price declines are more based on supply catching up with demand for DRAM. Apple unit weakness earlier in the year took the wind out of NAND. Apple also pre-bought commodities early and didn’t see the unit demand which also hurt memory pricing.
As for communications semis, we think channel inventory is back to normal which can help exposed companies that have been killed so far this year after weak Apple units earlier in the year.
No Cycle Peak
For a cycle peak you need a few things.
1) End demand would need to slow which we said above we don’t think is happening. A trade war would be a risk of that but, again, so far we don’t think there’s been a slowdown.
2) You’d need high channel inventories, which we think are fairly normal in most verticals. We do think there may be some elevated inventories in consumer gaming but that’s an outlier.
3) You’d need double and triple ordering which we don’t hear.
We don’t think we’re at a cycle peak in any industry yet. Again, if there was an all-out trade war, yes, slower demand could trigger a peak. Not there yet.
Net net sentiment is very negative looking for anything glass half empty but we’re looking for opportunities on weakness into Q3 earnings.
Looking For Tech Earnings Home Runs
We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.
All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.
We have no holdings in the stocks mentioned unless otherwise noted.
$AAPL, $INTC, $SMH, $INTC, $AMD