As the trading week came to a close, investors were feeling rather downbeat about the semiconductor industry. Many stocks in the sector had been flying high on the great promise of artificial intelligence (AI) boosting their results. However, some sour notes in recent earnings reports from major "chippies" -- particularly in the guidance posted by sector king Taiwan Semiconductor Manufacturing (TSM +0.41%) -- led to a fairly wide sell-off on Friday.
Taiwan Semi, which fell by over 3%, had plenty of company. Storage chip specialist Micron Technology (MU +2.54%) closed the day nearly 5% down, and analog chipmaker Texas Instruments (TXN +1.72%) slid by over 2%.
Uncomfortable news from Taiwan
What happens with Taiwan Semi reverberates throughout the chip sector, as the contract manufacturer is the 800-pound gorilla of the industry these days.
On Friday, investors were still digesting the Asian company's first-quarter earnings release published on Thursday. While revenue rose at double-digit rates and headline net income zoomed almost 9% higher -- both topping the consensus analyst estimates, by the way -- the company's guidance was a touch worrying.
NYSE: TSM
Key Data Points
Management pointed out that there is weakness in the formerly powerful global smartphone market, a dynamic that threatens to weaken future growth for the industry. Yes, AI is certain to be the rising tide that lifts all boats, but upside is limited if smartphones weigh down those watercraft.
Another not-so-positive development occurred with Super Micro Computer, a semiconductor industry supplier widely expected to be a major beneficiary of the AI revolution. The company has apparently elected not to preannounce its latest quarterly earnings release, which has been something of a habit for it lately. Market players are speculating this is because the figures won't look so hot.
Given the trailing growth posted by many chip companies and the feverish adoption of AI, more than a few analysts are expecting improvements to Supermicro's fundamentals when it publishes those fiscal second-quarter numbers.
Smartphones -- not a shocker
The world is still in the grip of AI fever, so ultimately the technology will keep the growth engine running for the better semiconductor companies helping to power it.
Also, while smartphones remain go-to items for much of the world, it's not surprising that they're no longer sources of hot growth. Improvements to their functionalities tend to be incremental these days, and users are hanging on to models longer before upgrading. It's not as if that segment is in any kind of free fall, or that this is a shocking development. This is likely one reason why that drop in semiconductor stocks Friday wasn't more drastic.
