Chip sector correction is 'a cautious blow': Analyst

The chip sector is undergoing a sector-wide correction as concerns grow around slowing demand for the products. Moor Insights and Strategy Founder and CEO Patrick Moorhead discusses why he believes markets are getting "ahead of [themselves] with some of the doom and gloom."

Moorhead notes "there's still this insatiable need" for semiconductor products, saying consumers "just can't get enough." He notes that oftentimes the products require a pairing across companies, so the demand is still there. While uncertainty persists around headwinds such as inflation and geopolitical tensions, he says this has forced investors to adopt "a wait-and-see attitude" in regard to the sector.

When asked if he believes markets are overreacting Moorehead tells Yahoo Finance: "I think this is just a cautious blow."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.

This post was written by Angel Smith

Video transcript

MADISON MILLS: A sector we're continuing to watch this morning, semiconductors. Shares of AMD and Intel both down over 16% in the last month. NVIDIA falling 10% from its all-time high that it hit back in March.

Now, the Philadelphia Semiconductor Index also dropping over 10% from its record highs, putting it into correction territory. For more on the recent moves we're seeing in the chip space, we are joined by Patrick Moorhead, Moor Insights and Strategy founder and CEO.

Patrick, thanks so much for being with us this morning. Let's start with what we heard from TSMC. We had executives calling out some slowness that we might be seeing in terms of demand for the overall sector. Was that a warning sign that investors need to listen to for the rest of this earnings cycle?

PATRICK MOORHEAD: Yeah. So I think there's some conservatism that's going into what TSMC is bringing out. And I think it's the part of the market that is an industrial IoT that I think is concerning. When it comes to big silicon on bleeding etch process, like, what NVIDIA and AMD and Intel and Qualcomm have, there's no issues there.

One thing we should keep an eye on, though, is Apple. We saw a very large decline in Apple sales from forecasts that we've been seeing in the industry. And that could have a little bit to do with that. Some of that is shifting over to some of the Chinese manufacturers.

SEANA SMITH: Patrick, is there no room for error from these chip manufacturers this earnings season? Because even just judging by the reaction that we're seeing to TSMC's results and some of the commentary that we're seeing and the ripple effects that it's having more broadly speaking across the chip sector, it almost looks like they're priced to perfection at this point.

PATRICK MOORHEAD: So I think that's getting a little ahead of ourselves on that. I think there is still this insatiable need for data center AI silicon. In fact, a lot of NVIDIA's best parts have six, nine months lead times still. And they just can't get enough.

And every one of those AI installations, typically, have to be paired up with a modern CPU from Intel or one that's designed from Arm. And then you have this upcoming what I like to call the PC and smartphone supercycle that isn't being placed in.

So I think we're getting a little ahead of ourselves here in some of the doom and gloom. There's a lot of TBDs when it comes to the inflation numbers and interest rates here in the United States and around the globe. And I think those, in addition to what is going on with the conflict in the Middle East, are giving people a little bit of a wait and see attitude.

SEANA SMITH: So Patrick, what's going to give investors more confidence. Because when you take a look at the reaction, at least, this morning, is this a bit of an overreaction, then, you think, to the downside?

PATRICK MOORHEAD: I think it's an overreaction. Listen, the high-end semi-space and everybody in the value chain, the stocks have just shot up like rockets, the AMD's, the NVIDIAs out there. And, by the way, anybody affiliated with that, which is Amazon, Microsoft, Google, and Meta, and I think this is just a cautious blow, likely some profit taking, and some jittery reactions from what's going on with interest rates in the Middle East.

MADISON MILLS: So really quickly here, Patrick, our final minute with you. Is every dip for some of these names buyable at this point?

PATRICK MOORHEAD: It's really not, especially, when you have a run like, companies like NVIDIA has and anybody who's related to that or a competitor to NVIDIA. I think people are playing a little game of chicken, which is they get a spurt of bad news. And people want to sell the name. And they realize that it's not a real gloom and doom. And they jump right back in to their position.

SEANA SMITH: Patrick Moorhead, always great to have you. Thanks so much for coming on and joining us once again here at "Yahoo Finance." Moorhead Insights and Strategy founder and CEO. Thanks so much.

PATRICK MOORHEAD: Thank you.