Semi revenue growth has peaked. Stocks as well.
2/3rd of Semiconductor revenues are slowing down into 2H24 (AI, PC, Server, Smartphone)
The recovering segments (Industrial, Networking, Auto) are too small to change the overall trajectory
The Semi sector is still expensive – valuations charts are borderline scary
3 divergent trends in the Foundry market. Legacy Foundry see a slow recovery. Chinese buyers are stockpiling. TSMC on its own cloud.
Legacy demand is recovering slowly for ex-China Foundries (Global Foundries, UMC, Vanguard). 1Q24 marked the bottom of the revenue cycle. Excess inventories are almost digested. 2H24 revenues will increase HoH but slowly, end-demand is lackluster. The positive is that margins have held up very well despite low utilization at ~70%. UMC stock is cheap, still.
China Legacy (Hua Hong, SMIC) is booming, firms say that demand is great... really? Or Chinese Semi customers are worried about further embargos? It’s coming (BBRG: ASML’s China Business Faces New Curbs). Both Hua Hong and SMIC stocks are expensive. The positive is that… ? inventories in China are increasing.
TSMC is driven by EUV demand: AI boom NVDA and Broadcom, AMD share gains, Intel outsourcing, Smartphone chips upgrade. EUV nodes are now 66% of revenues. On its own cloud.
NVDA post-market reaction (-7%) highlights the valuation problem. The correction of the tech sector should resume
NVDA 2Q beat consensus, 3Q guidance beat consensus, the stock declined post-market.
Overall, growth in Tech is mediocre (PC, smartphone, enterprise, telcos), with growth concentrated in AI Semis and Hyperscalers
The Tech segment of the NASDAQ 100 is expensive, Non-Tech is not.
Tech valuations: still not low. Reasons for a large correction are usually quite simple - as it is now
Despite a ~20% correction, valuations are still high, based on 2025 expectations that are high. That’s the core of the on-going correction. 2Q earnings were bad? Not really. Nasdaq and SOX Consensus (IBES) net income forecasts for 2024-25-26 are barely changed. So it’s the job report and the macro, isn’t it? I’ll keep my unqualified macro views to myself and more practically: 1) valuations remain high to very high 2) 2025 Consensus expectations are high, room for upside? Not clear for Semis
TSMC 2Q24 is good, 3Q guidance even better with margins improvement.
TSMC delivered a good 2Q24, 3Q guidance is even better with margins going up. Revenue growth of High Perf Computing incl. AI and EUV nodes is extremely impressive: above +60% YoY
SEMI valuations: stretched. Room for consensus to move higher? Not easy.
SEMI valuations: stretched. Room for consensus to move higher? Not easy.