What happened

Shares of Cypress Semiconductor (NASDAQ:CY) dropped 15.8% in September, according to data from S&P Global Market Intelligence, after multiple analysts expressed pessimism for the embedded semiconductor chip specialist. 

To be sure, Cypress Semi stock drifted lower throughout the month despite a lack of company-specific news that might otherwise merit the decline. Its steepest declines came on the heels of negative notes from analysts at both Morgan Stanley and KeyBanc.

Stock market chart indicating losses with number data in the background.


So what

More specifically, shares fell more than 6% on Sept. 24, 2018, when Morgan Stanley reiterated its "underweight" rating and reduced its per-share price target on Cypress stock from $15 to $13. To justify its relative bearishness, the firm argued that Cypress' margins are poised to suffer given peaking NOR and NAND memory markets.

If that wasn't enough, the following day KeyBanc analyst Weston Twigg echoed Morgan's margin concerns and downgraded Cypress from "overweight" to "sector weight." Twigg did add, however, that Cypress should benefit over the long term, given its leadership position in the automotive, industrial, and Internet of Things markets.

Also of note: Both analyst firms included their comments on Cypress as part of a broader negative view of the entire semiconductor market.

"We're constructive of the long-term trajectory of the industry as new demand drivers emerge," Twigg explained in a note to clients obtained by Benzinga. "Still, softening cycle metrics, near-term demand dynamics, and trade war risks are likely near-term headwinds."

Now what

Cypress most recently announced strong second-quarter results in late July, so it should be poised to follow with its third-quarter release later this month. You can be sure, then, that investors will be watching closely for any signs of industry headwinds and margin constriction. But given the chorus of skepticism from Wall Street last month, it's no surprise to see Cypress Semiconductor stock pulling back.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.