Semiconductor Industry Hit Hard by Broad Sector Weakness and Earnings Woes

The semiconductor industry is experiencing a notable downturn, with the Philadelphia Semiconductor Index down by 4.7 percent today. A combination of company-specific issues, broader sector challenges, and earnings reports are contributing to the sharp decline across the sector.

Among the most prominent factors impacting the sector is a 19 percent drop in Monolithic Power Systems (MPWR), whose shares plummeted following its latest earnings report.

The company’s Q4 guidance fell short of investor expectations, given the recent high performance of the stock, which had climbed over 50 percent from April lows. Analysts and investors are reassessing the high premium valuations in the semiconductor sector, especially with Monolithic Power trading at around 55 times its forward 12-month earnings estimates.

The company’s results not only disappointed in terms of guidance but also led several analysts to revise down their price targets, which only intensified selling pressure. As a result, the stock is trading below key technical support levels, including its 50-day and 200-day moving averages, further dampening market sentiment.

Broadcom (AVGO) is also facing significant pressure, with a nearly 5 percent decline amid news that Apple might consider shifting away from Broadcom’s Wi-Fi chips in favor of in-house development by 2028.

TF International’s report on this potential change reflects growing concerns about Broadcom’s reliance on its Apple contracts, which make up a sizable portion of its revenue base. The potential loss of this relationship could impact Broadcom’s longer-term revenue forecasts, with investors eyeing future quarters more cautiously.

Adding to the sector’s turmoil, Samsung Electronics has reported a steep 40 percent sequential drop in operating profit within its semiconductor unit, driven by weak demand in the mobile and PC segments.

Despite growth in the AI and server markets, the decline in traditional semiconductor products continues to be a drag on Samsung’s bottom line, casting a shadow over broader industry dynamics. The report has dampened expectations that mobile and PC demand will rebound soon, creating more skepticism around the stability of semiconductor earnings in the near term.

KLA Corporation (KLAC) shares have also taken a hit, dropping 5 percent after its fiscal Q1 report. Although KLA posted earnings that beat expectations and provided Q2 guidance in line with consensus, lingering concerns around Chinese demand and ongoing export controls continue to loom over the company’s future prospects.

With China representing over 40 percent of KLA’s revenues, tightening U.S. export restrictions could create further headwinds, leaving investors wary of potential revenue declines should these controls persist or expand.

Furthermore, leading AI chip supplier NVIDIA (NVDA) is under pressure as enthusiasm around AI plays starts to cool. Reports from Microsoft and Meta Platforms, both of which missed investor expectations, are casting a cloud over high-growth and momentum stocks, including those in the semiconductor space that had been riding the wave of AI-related demand.

NVIDIA’s share price decline reflects investor caution over the AI segment’s ability to continue driving significant growth in the face of a potential slowdown in broader tech spending.

This day’s selling in the semiconductor sector follows weak earnings and guidance from other tech heavyweights, including Uber, Microsoft, and Meta, which have pulled down growth-oriented stocks.

Investor confidence in high-momentum and growth stocks, which have disproportionately benefited semiconductor companies, has faltered, amplifying the sell-off in semiconductors.

Looking ahead, Intel’s earnings report, scheduled for release after the close, could play a pivotal role in influencing sentiment toward the semiconductor industry. If Intel provides a more optimistic outlook, it may help to stabilize the sector; however, a weak report could reinforce bearish sentiment and push the index further into negative territory.

Overall, today’s sharp pullback in the semiconductor sector is a reflection of a mix of factors, from valuation concerns to weaker-than-expected guidance and macroeconomic headwinds. As industry players navigate these challenges, investors are likely to remain cautious, reassessing the valuations and growth prospects of semiconductor stocks in the months ahead.