U.S. equities have performed remarkably well in 2023, with the S&P 500 and Nasdaq Composite respectively gaining 17.3% and 33.1% year-to-date. However, recent volatility around interest rates and inflation could make certain stocks untenable as near- and medium-term investments. In particular, as the chip glut continues, semiconductor stocks have been showing signs of weakness and distress that investors should be wary of. Below are three semiconductor stocks to sell, as they have been waving massive red flags recently.
Micron Technology (MU)
While Micron Technology (NASDAQ:MU) is one of the world’s largest producers of memory chips, it is also one of the top options of semiconductor stocks to sell, in my opinion.
Unfortunately, Micron business has suffered tremendously during the current economic cycle. In particular, the memory producer has had to endure falling prices and oversupply in the memory market, which have severely eroded its quarterly margins and profitability. In its latest quarterly report, Micron reported a 56.5% year-over-year decline in revenue and a 173.9% drop in earnings per share.
The company’s recovery from these record losses is, in essence, contingent upon consumers pouring back into consumer electronics. Because inflation remains pervasive globally, it is difficult to say when consumers will do so again. Many analysts are predicting interest rates to remain higher than what was initially predicted. A period of higher rates will not bode well for consumers or Micron.
Qualcomm (NASDAQ:QCOM) is a leading wireless technology and semiconductors business I have written positively about in the past, primarily citing its relatively cheap valuation and successful foray into 5G. Recent news that Apple (NASDAQ:AAPL) will continue to use Qualcomm’s wireless modems at least until 2026 should provide cause for further optimism. However, events in China have made me feel that this is one of the semiconductor stocks to sell.
Early this month, Huawei – the telecom, cloud and consumer electronics champion of China – quietly released the Huawei Mate 60 Pro which features a 7-nanometer system on a chip (SoC) designed and manufactured in China. Although the die size is technically a few generations behind what the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) is capable of manufacturing, this represented a surprising breakthrough for the world’s second largest economy.
However, the news spells a potential disaster for Qualcomm. The American semiconductor company supplies SoCs and wireless technology to many smartphones. Given Huawei has shown it can make a smartphone primarily composed of semiconductor parts sourced domestically while also exhibiting fast wireless speeds matching those of Apple’s own products, other Chinese smartphone OEMs, including OPPO and Xiaomi, could abandon Qualcomm’s products instead preferring domestically produced semiconductor devices, whether under their own volition or incentives from the government.
The bottom-line is, although Qualcomm has a potential opportunity with Apple, the company’s long-term, global growth prospects are cloudy, especially in its smartphone segment. As China marches on to be less reliant on the Western technology ecosystem, Qualcomm has a lot to lose in the years to come.
Qorvo (NASDAQ:QRVO) is a provider of radio frequency (RF) solutions for wireless communications, such as filters, amplifiers, switches and antennas. The company serves a diverse range of markets, including smartphones, wireless infrastructure, defense, aerospace and Internet of Things (IoT). However, Qorvo has been facing headwinds from the slowdown in its key end-markets, especially for wireless products destined for smartphones, where it derives a large portion of its revenue.
Qorvo has also been negatively affected by the slowing global economy and foreboding macroeconomic outlook. Similar to Micron Technology, Qorvo is susceptible to low consumer demand for electronics because its customers, which include Apple, purchase Qorvo wireless devices to enable wireless connectivity in smartphones, tablets and smart IoT devices. In its fiscal year 2023 report (ended in April), Qorvo reported a 23.1% year-over-year decline in revenue and an 89.2% year-over-year decline in earnings per share. The decline in top-line growth continued into Q1 2024. These successive factors lead me to think Qorvo is probably not the best bet in the current macroeconomic environment.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.