Rumors that China would retaliate on the U.S. banning on Huawei sent chip stocks sharply lower last week. If the news of the ‘unreliable entity list’ has any truth, then China banning various Apple, Cisco, or Qualcomm chip product would hurt the industry.
QCOM stock failed to break above the $80 in May and closed last week down 5% to $75.77 last Friday. The company is used to macro challenges, so the latest U.S.-China trade dispute is nothing new.
Micron (NASDAQ:MU), a good bellwether for the semiconductor industry, is stuck in a trading range of between $45 - $50. It fell ~8% last week. But at a forward P/E of 9 times, investors could bet the retaliation rhetoric is just noise. The demand for Micron’s chips is still strong.
Fundamentally, the chip industry is mostly immune to the global slowdown. Applied Materials (NASDAQ:AMAT) posted Q2 non-GAAP EPS of 89 cents. Revenue grew 11.9% to $3.96 billion. Its CEO said that "while the situation remains fluid, based on the visibility we have today, our supply chain is recovering, and underlying demand for our semiconductor equipment and services remains robust."
AMAT’s strong revenue growth and increased gross margin suggest that the chip industry will continue to strengthen. As long as the China retaliation is just noise, chip stocks will bounce back.
