What the Slump in Chip Stocks Means for the Tech Sector

The sudden slump in semiconductor equipment and materials stock is a worrisome signal. This sector is a leading indicator of the tech sector. If demand is weakening, shares of Micron (NASDAQ:MU), Lam Research (NASDAQ:LRCX), and Applied Materials (NASDAQ:AMAT) reflect the downside risks ahead.

Investors should not ignore the bearishness in the sector. LRCX lost ~25% recently despite raising its dividend by 13%, to $1.30 per quarter.
Micron warned investors at a conference that its quarterly results would not meet expectations. Despite Nvidia (NASDAQ:NVDA) announcing a new graphics card that needs high-speed DDR memory, customers ordered too many DRAM units, hurting Micron’s future revenue.

Applied Materials traded at $55 last week, breaking down an uptrend that began in March. The stock re-took pre-Covid-19 highs, only to falter. This is a bearish technical signal on the charts. And at a P/E still in the low teens, investors should brace for risks ahead. Buying the dip in any of these stocks may pay off, but the bearish sentiment appeared quickly.

Furious selling in Tesla and Apple stock this month erased the steady bullishness investors enjoyed in the summer. That is likely over. A reversion to the mean may create excellent entry points for investors willing to buy on the dip.