What happened
Shares of Advanced Micro Devices (AMD 9.10%) fell 6.1% on Tuesday as fears of an imminent slowdown in the semiconductor industry intensified.
So what
Investors are growing more concerned that the economy could be headed toward a recession. With inflation raging, COVID-19 continuing to disrupt supply chains, and conflict in Europe driving up energy prices, the economy will have no shortage of challenges to overcome in the weeks and months ahead.
Image source: Getty Images.
Semiconductor companies could be particularly exposed to an economic downturn. After experiencing booming demand for their chips in recent years, analysts say the industry could soon face a supply glut if sales of PCs and other devices wane. That could lead to depressed chip prices and sagging profit margins for businesses like AMD.
Worse still, the downturn could be even more severe if chip shortages drove buyers to pull forward their orders over the past year. That would likely force AMD and other chipmakers to cut their sales and earnings forecasts in the quarters ahead as they attempt to right-size their inventory levels and manufacturing capacity.
Now what
With so much uncertainty, investors are responding by selling off chip stocks. The PHLX Semiconductor Index is down more than 26% so far in 2022. AMD's stock price decline has been even steeper. The chip giant has shed over 40% of its value this year.
Shareholders can expect to hear management's perspective on the current state of the semiconductor market when AMD reports its first-quarter financial results on May 3.
