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All’s well that ends well in the stock market — and as trading winds down in what has been a miserable year for semiconductor investors, shareholders of Taiwan Semiconductor Manufacturing (TSM 4.02%), Intel (INTC 2.62%), and Qualcomm (QCOM 2.68%) are getting a reprieve of sorts.
So far this year, TSMC has lost 39% of its market cap, Qualcomm 41%, and Intel is down 51%. But for various reasons, shares of TSMC are enjoying a 3.6% bump on the second-to-last day of trading this year, as of 12:22 p.m. ET. Qualcomm is gaining 2.9%, and Intel is up 2.2%.
TSMC is today benefiting from a report by Taiwan’s DigiTimes that says the company will begin to scale its production of industry-leading 3 nanometer semiconductor chips as early as mid-2023. “Multiple customers” are said to be ordering TSMC’s newest chips, which suggests that even if the rest of the semiconductor industry has fallen into an inventory glut, TSMC, at least, appears to still have the potential to grow in the new year.
Similarly, Intel is benefiting from good news from Reuters, which reports that patent-holding company VLSI Technology has agreed to drop a $4 billion patent violation lawsuit against Intel — apparently without Intel paying VLSI anything. Although Reuters admitted that Intel “did not provide additional details” on the companies’ settlement, investors are taking the announcement at face value, and bidding up Intel stock on the assumption it will not need to pay VLSI any more money.
In contrast, the news on Qualcomm today isn’t obviously good for the company. According to DigiTimes, Qualcomm may be forced to cut prices on its midrange and entry-level Snapdragon processors in 2023. Presumably, this is a move by Qualcomm to cut inventories and goose sales. Still, even if a price cut succeeds in keeping sales rising, it also threatens lower gross margin for Qualcomm in the new year.
That being said, proactive moves by Qualcomm — especially if imitated by others — could turn out to be good news for the semiconductor industry in the long term. Rather than drag out a situation in which the industry is in a state of oversupply, quick price cuts to clear out stale product, combined with reductions in volume of new product produced, could end up being good news for all participants, including Qualcomm itself.
Granted, this doesn’t change the fact that the cuts could hurt both revenue and margins for semiconductor stocks in the short term. But viewed in light of the expected timeline for TSMC’s introduction of its newest chips (i.e., mid-2023), it would appear that investors are looking at six months of lean times for semiconductor stocks — followed, possibly, by a return to growth in the second half of the new year.
From my perspective, that’s actually not too long to ask investors to wait. After all, semiconductor stocks look pretty attractively priced today, with TSMC trading for 13.2 times trailing earnings, Qualcomm costing only 9.6 times earnings, and Intel the cheapest of the bunch at a mere 8 times earnings. For investors with the patience to wait at least six months to see how things shake out, today just might be a good time to start placing bets of a revival for semiconductor stocks in 2023.
Fingers crossed.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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