Micron, Intel warnings signal slowdown for chip makers

Yahoo Finance Live’s Brian Sozzi discusses the chipmaker slowdown as consumer demand for PCs continues to decline.

Video transcript

BRAD SMITH: And while the boom might be over for chip makers here, as we're looking at a heat map here, the consumer demand for PCs and other tech gadgets, that appears to be slowing down. And that's where we find Sozzi's take today. Sozz, this is impacting so much. Help us break this down.

BRIAN SOZZI: It's the cold map, Brad. And there's nothing hot on that NASDAQ or anything in the chip space. But really a good story by "The Wall Street Journal" over the weekend, looking at this impending bust in the PC market-- or a PC bust, in addition to a semiconductor bust after two years of strong growth. I want to break this down a little bit to help viewers and investors out there make sense of what we're seeing.

The bad news is, in fact, starting to pile up. We've been covering at length that Micron warning last week. Not only was the quarter for Micron not good, the commentary on the earnings call, not good. And then the financial warn-- financial outlook was well below analysts' estimates in terms of sales and profits. So that's negative tell number one.

And then you have to go back to late June. You had Intel CFO David Eisner, an interim CFO, warning about a quote, "noisier second half of the year." And then you had IDC, which tracks PC shipments, noting recently that they expect PC shipments in the first half of this year to be-- or this year, I should say, down 8.2% year over year.

So the bad news and the chip space is indeed piling up. And that is already starting to be well reflected in the stock prices. I want to pull up this chart here from the folks at Citi. Citi is mapping-- or charting, I should say, the valuations on the Philadelphia Semiconductor Index versus the S&P 500.

And you can see right there on the right side of that screen, the valuations on the SOX is now lower than the S&P 500 as the market really starts to price in more quarters from the chip space, like the one we have seen from Micron a couple of days ago.

And then if you look at the SOX more broadly, just the SOX Index itself, it's down 38% year to date. The S&P 500 is down 23% year to date. But some of the biggest names in the sector, some of the hottest tickers on the Yahoo Finance platform, down way more. You have AMD down 49% year to date and Nvidia down 51% year to date.

As our producer [? Toussan ?] continues to mention, you have seen a real pricing pressure come to the graphics chips for-- that help mine cryptocurrencies. And those prices for those chips have come down considerably. Nvidia is a major player in that market. And you've seen Nvidia shares hammered as a result. You've see Micron shares, of course too, down 42% year to date.

Last but not least, again, this is my take. And maybe it's really not any surprise, the bad news is likely to continue. That's, I guess, me in a chip circuit board. That might take the cake for originality for these Sozzi's Takes. That's top work by the team. But the more bad news is likely.

What we heard from Micron is likely the tip of the iceberg, as PC pile-- as PC shipments slow, as PC inventories pile up. You had that HP downgrade this morning that we just talked about, as well. So be on high alert.

BRAD SMITH: Yeah this impacts everything from data centers-- by the way, that was nanometer size that people saw there on the screen.

BRIAN SOZZI: Nanometer, I'm sorry.

BRAD SMITH: [LAUGHS] And so it comes down to all of the different impacts that this also signals for the broader market, too. This is everything from not just PCs, but consumer technology at large. This is data centers that this also impacts. And then you mentioned, the crypto mining capacity that a lot of people had bought up these chips for, too.

And so all of this considered, a lot of those major players and the declines that we've seen, it's going to be really telling what they tell or sell the street on what their trajectory looks like for these coming quarters that could be extremely critical for them.