Shares of chip packaging giant Amkor Technology (AMKR -24.74%) plunged on Tuesday, down 24.1% as of 2:10 p.m. EDT.
Amkor reported earnings last night, which handily beat expectations. However, forward revenue guidance came in below analyst expectations. The market is in quite an unforgiving mood regarding chip stocks right now, so any slight miss on any particular metric is bound to be met with a big sell-off.
Still, Amkor plays a vital role in the AI build-out, with long-term partnerships with Taiwan Semiconductor Manufacturing (TSM -1.48%) and Nvidia (NVDA +0.42%). Therefore, the sell-off could make for a prime buying opportunity.
NASDAQ: AMKR
Key Data Points
Amkor blows out the quarter, but a memory crunch looms for its biggest segment
In the second quarter, Amkor grew revenue 26% to $1.90 billion, with earnings per share rising 218.2% to $0.70. Both figures were well ahead of analysts' expectations of $1.82 billion and $0.48, respectively.
Yet while the quarter topped expectations by a fair amount, forward guidance left something to be desired, at least on the revenue front. Amkor guided to Q3 revenue of $1.95 billion to $2.05 billion, below analysts' expectations of $2.11 billion.
Given the big run-up in the stock over the past year, it's perhaps not a surprise that the stock sold off on that "weak" guidance. However, looking under the hood, Amkor's AI growth story remains intact.
Image source: Getty Images.
The bull case for Amkor
It should be noted that, even though Amkor's revenue guidance came in light, the company's gross margin guidance of 18.5% to 19.5% was well above analysts' expectations of 16.4%, and EPS guidance was $0.72 to $0.82, well ahead of analysts' estimates of $0.63.
The higher margins are due to Amkor's high-end packaging within its Computing segment, which encompasses AI systems. That segment appears to be going strong, but the Communications segment, which includes smartphones and tablets, is expected to decline in the high single digits on a sequential basis this quarter. This is due to the memory supply crunch, which the company expects will affect smartphone unit sales. Given that the Communications segment accounted for 42% of revenue last quarter, it's perhaps no surprise that its weakness is offsetting the strong growth in data center revenue.
But eventually, the memory supply crunch will ease; meanwhile, AI-related compute looks to be a strong long-term growth trend. That makes Amkor look like a long-term buy on this semiconductor sector sell-off.
