What happened

Wednesday is turning into an unpleasant day for investors in semiconductor stocks as shares of Intel (INTC -1.60%), Qualcomm (QCOM -2.53%), and Applied Materials (AMAT -4.58%) slide in early trading. As of 9:50 a.m. EST, Intel stock is down 2.6%, Qualcomm is selling off 3.6%, and Applied Materials is leading the sector lower with a 4% loss.

But another company entirely may be to blame for this sell-off: Micron Technology (MU -4.47%).

So what

Yesterday Micron cited weakening market conditions as its reason for cutting DRAM and NAND computer memory production by approximately 20% in Q4, and warned these cuts "will be made across all technology nodes where Micron has meaningful output."  

NAND memory produced will still be up year over year (YOY), but down sequentially. DRAM production will decline both YOY and sequentially as Micron positions its business to weather anticipated reduced demand in 2023 -- and shrinks its inventories accordingly. But what do Micron's problems have to do with Intel, Qualcomm, and Applied Materials? Why might these stocks be going down today in response to Micron's news?

As Reuters points out this morning, "Micron was the first major chipmaker to sound an alarm about falling demand for PCs and smartphones earlier this year." Because of this, investors appear to be making Micron into a sort of bellwether for tech stocks -- the proverbial canary in the coal mine. And if Micron just dropped dead, the worry is that other semiconductor makers (and in the case of Applied Materials, makers of equipment for making semiconductors) may soon also be gasping for air.  

Now what

Now, the news isn't all bad. Turns out, just last night -- and importantly, after Micron posted its warning -- investment banker Credit Suisse released new stock ratings in which it recommended buying shares of Micron and Qualcomm, and several other chips stocks besides. According to The Fly, Applied Materials wasn't one of the stocks recommended, nor was Intel.  

Interestingly, Credit Suisse cited Intel's need to play catch-up with other semiconductor companies, and the toll this will take on the company's free cash flow, as the primary reason it rated Intel stock only neutral and not outperform (like Micron and Qualcomm). And indeed, if we take a look at Intel's financials, we can see that currently, Intel looks like one of the weakest players in semiconductors, with trailing-12-month free cash flow of negative $13.3 billion.

In contrast, data from S&P Global Market Intelligence shows Qualcomm, Applied Materials, and Micron all still generating positive free cash flow -- $6.8 billion, $4.9 billion, and $3.1 billion, respectively, over the last 12 months.

Of these three, Qualcomm appears to offer investors the best valuation, with a 19.9 free-cash-flow multiple on its stock, a respectable 17% projected growth rate, and a 2.4% dividend yield to boot. If you're looking to take advantage of today's sell-off and buy into semiconductor stock weakness, I suspect Qualcomm stock is the best place to start looking for a bargain.