Marvell and Other Chip Stocks Are Struggling. Two Bulls Turned Neutral.

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Semiconductor stocks have struggled this year as investors fretted about a potential economic slowdown. Pointing to concerns about demand, analysts at B.Riley Securities just downgraded shares of eight semiconductor and semiconductor-equipment manufacturers.

Analysts Craig Ellis and Michael Mani wrote in a note Wednesday that the changes reflect concerns about results in the second half of 2022 and in 2023 due to slowing demand and rising input costs.

The analysts cut their Buy ratings to Neutral on

Marvell Technology

(ticker: MRVL),

Alpha & Omega Semiconductor

(AOSL),

indie Semiconductor

(INDI),

Semtech

(SMTC),

Transphorm

(TGAN), as well as chip-equipment manufacturers

Lam Research

(LRCX),

Camtek

(CAMT), and

Ichor Holdings

(ICHR). They also trimmed price targets on those stocks, as well as on Buy-rated

Identiv

(INVE),

Microchip Technology

(MCHP),

Sequans Communications

(SQNS),

Axcelis Technologies

(ACLS),

FormFactor

(FORM), and Neutral-rated

Skyworks Solutions

(SWKS) and

Kulicke & Soffa Industries

(KLIC).

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Specifically, they see Marvell as a leading product company, but fear its multiple could come under pressure, especially if the company faces pockets of weakness in enterprise spending.

The analysts noted rising energy and food prices have weighed on consumer sentiment, which could intensify the risk ahead of “product demand destruction.”

They write that the new target multiples factor in their view that cyclical valuations could persist for multiple quarters. Though the

PHLX Semiconductor Index

(SOX) has fallen 31% in 2022, they think the index can fall another five to 15 percentage points before bottoming sometime between the middle of the third quarter and the middle of the fourth quarter. They think it’ll take a quarter or two of bad earnings news for chip stocks to truly bottom.

“Sector stock action historically correlates positively to estimate-revision trends, and valuation to revenue growth rates and gross margin levels and direction,” they write. “Cuts for Consumer-facing Semis, some enterprise-facing Semis and potentially even Semi Caps seem likely ahead.”

Write to Connor Smith at [email protected]