Investors were feeling quite pessimistic about the semiconductor industry as the trading week drew to a close. Many stocks in the sector had soared on high hopes that artificial intelligence (AI) would boost performance. However, there are some harsh criticisms in the recent financial reports of major chips companies, especially in the guidance posted by Sector King. taiwan semiconductor manufacturing (NYSE:TSM) –led to a fairly broad-based decline on Friday.
Taiwan Semi, which fell more than 3%, was a good enough company.storage chip specialist micron technology (NASDAQ:MU) Analog chip makers ended the day down nearly 5%. texas instruments (NASDAQ:TXN) It fell more than 2%.
Unpleasant news from Taiwan
What happened with the Taiwanese semi has repercussions throughout the semiconductor industry. Because contract manufacturers are the 800-pound gorillas of the industry these days.
As of Friday, investors had still not digested the Asian companies' first-quarter earnings reports released on Thursday. Revenue grew at a double-digit rate, and overall net income increased by almost 9%, both of which, by the way, beat analyst consensus estimates, but the company's guidance was a bit concerning.
Management noted that there are weaknesses in the once-strong global smartphone market and that these dynamics threaten to weaken the industry's future growth. There's no doubt that AI will be the updraft that lifts all boats, but if smartphones become a burden to those personal watercraft, the upside will be limited.
Another less positive development occurred super microcomputeris a supplier to the semiconductor industry that is widely expected to be a major beneficiary of the AI revolution. The company has apparently chosen not to pre-announce its latest quarterly results, which appears to be its recent practice. Market observers speculate that this is because the numbers are not very encouraging.
Given the slow growth of many semiconductor companies and the frenzy of AI adoption, many analysts are concerned about the company's fundamentals when Supermicro releases its fiscal second-quarter numbers. I hope it improves.
Smartphones — Not shocking.
As the world continues to be dominated by AI fever, this technology will ultimately continue to drive the growth engine and better semiconductor companies will become AI powerhouses.
And while smartphones are still the go-to item for many people in the world, it's no surprise that they are no longer a source of rapid growth. These days, feature improvements tend to come in stages, giving users more time to upgrade. It's not like the segment is in some kind of free fall or that this is a shocking development. This may be one reason why the decline in semiconductor stocks on Friday was not as steep.
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Eric Volkman has no position in any stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing and Texas Instruments. The Motley Fool has a disclosure policy.
“Why Semiconductor Stocks Got Hit Today” was originally published by The Motley Fool
