Analyst Trims Price Targets For AMD, Nvidia Ahead Of Q4 Results: 'Correction In Asia Is Worsening'

Zinger Key Points
  • End market demand and worsening correction in China will serve as a double whammy for semiconductor companies, says KeyBanc.
  • The firm, however, sees a soft landing as chip companies are now better-equipped to navigate this downturn.

Semiconductor companies are facing challenges to start the year but a soft landing is likely, according to an analyst at KeyBanc Capital Markets. The tech sector is coming off a tough year, which was marked by slowing demand and production challenges.

Negative Tidings From Supply Chain: Correction In Asia is worsening amid the reopening in China that has led to a spike in COVID-19 cases, negatively impacting consumption, KeyBanc’s semiconductor analyst John Vinh said. The setback is more marked for PCs and smartphones, he added.

See Also: Best Semiconductor Stocks

The analyst said most end markets, including PCs, smartphones, consumers, data center, industrial and automotive are showing signs of an incremental demand slowdown. With the ongoing broader inventory destocking, channel resales were down by 5% sequentially, he noted. The analyst expects fourth-quarter resales to be down 5-10% sequentially.

Cloud demand is softening and enterprise and China demand continued to weaken, KeyBanc said.

Soft Landing Expected: Semiconductor companies are in a much better position to navigate this downturn relative to the past cycles due to better visibility, more secular drivers and better pricing leverage, Vinh said. The analyst, therefore, expects a soft landing for the sector.

Also, Vinh sees the risks associated with the current correction being already reflected in the stocks. The peak-trough declines in the iShares Semiconductor ETF SOXX of 46% is greater than the historical average of 35%, he said.

AMD, Nvidia, Get Price Target Cuts: Vinh maintained an Overweight rating on Advanced Micro Devices Inc. AMD and reduced the price target from $85 to $80.

The reduction reflects weakening PC demand, softening Cloud and excess gaming GPU inventory in the channel. That said, the analyst sees meaningful share gain opportunities in servers with the launch of Genoa and a 30-50% average selling price increase.

The analyst reduced the price target for Nvidia Corp. NVDA from $230 to $220, citing a delay in achieving $2.5 billion in gaming revenue to the second quarter of 2024 and China data center pull-ins due to the U.S. export controls of A20-A40 and A800 GPUs.

He, however, maintained an Overweight rating based on his view that Nvidia remains the best-positioned chip company to monetize secular growth opportunities in machine language and artificial intelligence.

AMD, Nvidia Price Action: According to Benzinga Pro data, AMD closed Tuesday’s session 1.20% higher, at $68.05, and Nvidia added 1.80% before ending at $159.09.

Read Next: 20% Stock Rally, Rising M&A Activity, Apple's AR Glasses, Incremental Job Cuts And More: Analyst Shares Christmas Wish List For Tech Sector

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