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Is the bottom of Semi-conductor already in?

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TJ Research wrote a column · Feb 1, 2023 20:01
AMD$Advanced Micro Devices(AMD.US)$ , Advanced Micro Devices, released its 2022 Q4 earnings result on Jan. 31st, 2023. Both topline and bottom topped analysts’ estimates by thin margin while revenue guidance for Q1 2023 missed by roughly by 4.6%, $5.3B at the mid point vs average of $5.6B pulled by analysts. So why the stock rallied 2% after-market on worse-than-expected guidance and finished the day up by 12.6%? Let’s dive in.
Source: Yahoo Finance
Source: Yahoo Finance
AMD’s performance (+27.5% since October low) lagged its notable peers, ASML$ASML Holding(ASML.US)$ (+75%) and NVDA$NVIDIA(NVDA.US)$ (+63%) before today’s rally. It’s mainly due to its business mix which half of them are cyclical namely, Client & Gaming. Its client business is heavily impact by the slowdown in PC market. Revenue for client segment was cut by more than half from $2.1B in Q1 2022 to $0.9B to Q4 2022 in just three quarters. In the meantime, Its growth engine, Data center has also shown some weakness ahead. As noted by the management during the conference call, “Data center will have double digit sequential decline while Client and Gaming will face single digit decline”. Lisa continued by saying “three’s more than seasonality to the decline in DC segment as some of our cloud clients need to adjust their inventories.” It seems like the industry is still facing macro headwinds and things will become worse before getting better. So why market chose to ignore the on-going weakness this time?
The answer to the last question is market always look forward, beyond 6-9 months. Like ASML & TSMC, AMD expects gloomy growth for the 1H of 2023 and growth will pick up again in the 2H. The consensus in the broad semi-conductor market is the inventory correction will likely end in first half should macro environment doesn’t deteriorate much from here.
Bottom line: The run started from October low has been incredible and a healthy correction is almost inevitable in the near future. Will it test the previous low? Probably not. The long term bull thesis in semi has never changed, what has changed is the market sentiment and narratives created along price action. Investors should tune out the noise and focus on the fundamentals.
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Disclosure: The author does not own AMD at the time of this writing and this is NOT financial advice.
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