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A Wells Fargo analyst told investors in a note Friday that semiconductor stocks are “beginning to show signs of bottoming.”
While the analyst sees signs that the downside move may be nearing an end, he also stated that the firm is not yet fully confident that there has been a full/appropriate downward reset.
The analyst added that while they have many variables in mind, they think the key high-level areas of focus into the third quarter earnings season will include an increasing propensity for forward backlog compression/cancelations, questions and concerns over the structural sustainability of price increases, consumer weakness, demand drivers, and the resilience of auto/industrial markets.
Meanwhile, the analyst said the firm sees investor sentiment as “increasingly apathetic to whether PCs fall 15-20% y/y at this point (getting closer to the bottom); smartphones weak, but lifting China lock-downs could help create a bottoming into late-2022/1H2023.”
“Overall, we continue to believe that the automotive end market within semiconductors can remain stronger-for-longer. During the pandemic, smartphone and PC sales were trending well above the long-term trend line, with the idea that perhaps people were pulling ahead their replacement cadence,” wrote the analyst.
“Now, demand is normalizing. However, during the pandemic, and even today, light vehicle production has been anywhere between 15MM (today) to 25MM below the annual trend line (~20-25% below trend line). Unlike the PC and smartphone markets, supply has yet to catch up with demand in automotive,” he added.
