Are Micron Technology (MU) earnings a canary in the coal mine for AMD stock, Nvidia?

Only recently relished as a safe harbor in 2022's stormy sea for equity markets, semiconductor stocks are looking less and less safe as the end of the chip shortage has given way to a drawdown in demand that has caught many companies and analysts off-guard. Micron Technology (MU) stock got slammed last week after reporting guidance that fell well short of Wall Street's figures. MU shares dropped 3% to $53.65 on the news despite Micron offering up an earnings beat for the fiscal third quarter. This weakness in outlook led to Nvidia (NVDA) dropping 4.2% to $145.23 on Friday and Advanced Micro Devices (AMD) losing 3.7% to close at $73.67.

Also read: Nvidia Stock Deep Dive Analysis: NVDA price target at $205 with strong revenue growth

Semiconductor Stock News: End of the salad days

Computer chip stocks soared during the pandemic. Logistics backups and heavier demand for consumer electronics and vehicles led to a major shortage in computer chips. The market treated the unusual supply-demand situation as if it would never end. Micron stock surged 75% during the pandemic; AMD, 225%; Nvidia, 440%. 

Since the beginning of 2022, however, heady valuations mixed with expiring demand have led to the opposite story. Year to date, Micron stock is down 44%; AMD, down 51%; Nvidia, down 52%. Micron is actually now trading below its share price at the beginning of 2020.

Micron vs AMD vs Nvidia share price since 2020 in percentage gain

Micron's quarterly earnings last Thursday were the icing on the cake. At first glance, earnings were strong. Adjusted earnings per share (EPS) of $2.59 beat consensus by 16 cents and amounted to a 38% YoY increase. Revenue of $8.64 billion was also in line. However, CEO Sanjay Mehrota quickly suffocated any cause for celebration. “Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023," Mehrota said. "We are confident about the long-term secular demand for memory and storage and are well-positioned to deliver strong cross-cycle financial performance.”

When a CEO stays focused on long-term prospects rather than near-term catalysts, you know there is a problem. Rather than the $2.60 a share in adjusted EPS that Wall Street had pegged for the current quarter – the fourth fiscal quarter – Mehrota said to expect $1.63. He also reduced expectations for sales from $9.05 billion to $7.2 billion. The reduced guidance stems from a sudden cutback in orders for chips used in smartphones and laptops. Micron is focused on the memory end of the chip market, and that sub-sector is even more heavily cyclical than the rest of the industry.

Advanced Micro Devices (AMD) already began the rumor mill that cancellations were becoming commonplace in April when Trust Financial began citing evidence of shelved orders. Both AMD and Nvidia are said to have received major order cancellations or pauses to long-term supply agreements for their GPUs. 

A host of semiconductor tool makers, such as Applied Materials (AMAT) and ASML Holding (ASML), also fell on Friday due to Micron chipping away at manufacturing tool spending. Bank of America analyst Vivek Arya said Micron's reduction in capex might spread to other chip makers in the latter half of the year.

Micron Stock Forecast: $42.50 is the next entry point for MU

Micron stock is in the second leg of a long-term downtrend as can be seen in the weekly chart below. At its current closing price on Friday, MU shares are already sitting on support above $53 from May through July of 2020. If this price does not hold, and we do not expect it to, then the Micron stock price could trend to as low as $42.50. This is support from the late summer of 2020.

Micron weekly chart

Advanced Micro Devices Stock Forecast: $59 is longer-term support for AMD

AMD stock, like Micron, is already at support. In normal times I would say this demand zone stretching from $72.50 to $75 would hold, but with demand sagging and most pundits saying to expect a US recession momentarily (anytime from now through the next 12 months) investors should expect the worst. If $72.50 does not hold, AMD stock should drop to long-term support at $59. That price level served as staunch resistance for most of 2020 and now can be expected to provide some support.

AMD weekly chart

Nvidia Stock Forecast: $115 is hard to break for NVDA

Nvidia stock holders can breathe a sigh of relief. Closing at $145 last Friday put NVDA shares at the top range of a strong volume zone. This zone lasted from August 2020 to May 2021 and will likely hold strong once more. The demand zone goes from $115 all the way to $147. NVDA could still shed another 20% and hit $115, but we find it unlikely to break that price level. This is a long-term hold for many institutions, and even value pickers would get in the mix at $115. 

NVDA weekly chart

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