shares of Micron Technology (MU – 5.29%), Nvidia (NVDA – 6.66%) and Advanced micro-devices (AMD – 6.95%) They fell a lot on Monday along with the tech sector. As of 2 pm ET, these shares were down 4.7%, 5.8% and 6.1%, respectively.
Each of these actions has yielded great heartbeats and excellent guidance, so why is this happening?
Last week’s inflation reading was higher than expected, which has led to fears that the Federal Reserve will have to control interest rates more aggressively to raise prices, which could lead to a recession. Even though the chip sector is in the healthiest position in its history, its cyclical reputation is selling massively to investors amid fears of a recession.
Also, the fact that Micron’s level is down now doesn’t help.
On Monday, analyst KinNgai Chan of Summit Insights dropped from holding Micron. Micron is one of the most cyclical stocks in the semiconductor sector, as the price of its memory chip varies according to supply and demand in the economy, causing volatility. Lately, he has been giving very strong results and guidance as his leadership has outscored his rivals. However, Chan believes that good times can end soon.
Checks on its latest channels show that it has shown a steady low demand for memory chips for mobile phones and computers. This is not surprising. As the pandemic-era personal computer boom ends as the economy reopens, consumers are now spending on experiences, not to mention high food and gas prices biting into household budgets. The same thesis was directed by analysts Piper Sandler (PIPR – 2.80%) dropped to the level of Micron last week.
The same fears are likely to plague Nvidia and AMD today; both of these companies are facing computers and gaming, two discretionary sectors that could decline this year as a result of a slowdown in consumer spending.
However, although fears about consumer electronics sales have affected each of these stocks, these names have also affected the data center sector, which has been and continues to be very strong. Chan also noted in his note that the strength of the data center is ongoing, as cloud transition and artificial intelligence (AI) applications continue to grow.
In the last quarter, Nvidia increased its data center segment by 83%, with AMD’s embedded, enterprise and semi-custom segment, which includes EPYC data center chips, up 88%. These figures for the data center segment were the strongest for all companies in the last quarter.
However, if there is a wider economic slowdown, Chan’s fear is that data center customers may start to back down at some point. Although there is no sign of this now, this would affect the current power pillars of these companies.
Therefore, whether these shares are now traded is largely dependent on the most important data center market. But before everyone panics, some analysts remain optimistic about it. UBS (UBS – 4.18%) a note was also released today, repeating Micron’s purchase valuation, even as the company lowered its price target to $ 115, below $ 120. However, it is significantly higher than the current $ 59 share price.
UBS represents its secular strength in the data center market, as new server formats have increased this year due to the need for more memory content. Analysts also noted a controlled supply growth from big memory names due to poor equipment supply.
Nvidia CEO Jensen Huang also noted the high visibility of the data center’s growth in Nvidia’s latest earnings call, as AI’s latest steps have led to high demand. For its part, Micron said in its latest analyst day that the data center segment was now the largest, surpassing the mobile segment in size and growing faster. By 2025, Micron expects data center chips to account for 42% of its revenue, up from 30% today, and that combined with computer and mobile (current segments) will see it fall from 55% to 38% of revenue.
Therefore, the main issue to be addressed is data center investment. If it continues like this, these three shares will look very cheap after this sale. But if a wider recession removes even the strongest secular trend in cloud AI, there could be another leg.
However, while it may not be clear in the short term, in the long term – for example, between five and 10 years – I would expect each of these stocks to perform very well due to the growth of cloud-based AI applications. a tool for all businesses large and small.