Well, Taiwan Semiconductor Manufacturing (RSMC) ought to know. The world’s largest chip foundry makes semiconductors for just about everyone. And last week the company said that it expects revenue to fall in the first half of 2023 as semiconductor companies cut orders and reduce inventory. But, the company says, it expects demand to return to “normal” in the second half o 2023.
Today I posted my two-hundred-and-twenty-second YouTube video: Caution! Technology Margin Shake-Up Ahead!
This starts off as an Apple (NASDAQ: AAPL) story. Apple recently announced that it would be moving away from using Broadcom (AVGO) chips for Wifi and Bluetooth in its iPhones, and begin using its own chips in 2023. This will of course make for better margins for Apple and speed up the company’s ability to implement new technology. This is a big blow for Broadcom which relies on Apple for 20% of its revenue. Apple also announced it’ll be moving away from QUALCOMM as they project it will have Apple chips to replace the QUALCOMM modem chips by late 2024-2025. (We’ve heard this before. And Apple had to call off the switch because of technology glitches.) You can expect more technology (and other) companies to shake up their own product designs and supply chains as they look at inflation and costs. Corporate profits have been at historic highs protecting profit margins at current levels won’t be easy.
News, rumor, and speculation from the Consumer Electronics Show point to a second half of 2023 launch for Apple’s (AAPL) AR “metaverse” headset. Apple has been “launching” this high-performance AR headset since 2017 but plans for a launch were put off in 2020, 2021, and 2022. The launch has even slipped in 2023 from plans to introduce the headset in January with the product shipped later in 2023. But now it looks like a spring announcement
Apple (AAPL) shares were down another 1.21% as of 3:30 p.m. New York time today, December 27. That took the stock down to its lowest price since June 2021. The worry, of course, is China where, first, shutdowns under the country’s 0-Covid policy closed factories and kept consumers out o stores, and then, second, where an abrupt reversal of that policy has accelerated a new wave of outbreaks.
The timing of these developments, though, has some advantages for Apple.
Today I posted my two-hundred-and-tenth YouTube video: Quick Pick Defiance Palo Alto Networks. This week’s Quick Pick is Palo Alto Networks (NASDAQ: PANW), the cyber security software platform company. During this bear market, it’s not surprising to see some stocks down nearly 50% and trading at 30% to40% discounts, but Palo Alto has managed to drop only 8% for 2022 and is trading at a relatively slight 15% discount to fair value, according to Morningstar. While Palo Alto has had its severe dips, it recently bounced back up after announcing very solid earnings. In the quarter sales were up 25% year over year and annual recurring revenue (from SAAS subscriptions) was up 67% and billings were up 27%. Palo Alto covers a lot of areas of cybersecurity, making it a more attractive alternative for enterprise corporations looking to consolidate their security software and move to a one-stop shop that can cover more aspects of their security needs. I’m reluctant to buy anything in this continuing bear market, but would suggest looking at this stock in February 2023 or so, especially if it dips again. Palo Alto Networks is a member of my long-term 50 Stocks Portfolio on my two investing sites. The stock is up 108% since I initiated that position on January 21, 2020. The stock is also a member of my Millenial Portfolio on my subscription site JubakAM.com. That position is ahead 41% since May 21, 2021
This morning before the stock market open Coca-Cola reported earnings of 69 cents a share for the third quarter. That was up from 65 cents a share in the third quarter of 2021 and was above the 64 cents a share expected by Wall Street analysts. Revenue of $11.1 billion was higher than the $10.5 billion projected by Wall Street.
Earnings. Earnings. And more earnings. From the big bellwether technology stocks: Apple, Amazon, Microsoft, Meta Platforms, and Alphabet. Wall Street has already slashed earnings forecast for these stocks so there’s a good chance these companies will report earnings that surpass expectations even if only by a few pennies. By and large, though, these reports will show either an absolute drop from the September quarter of 2021 or, at best, a slowing of revenue and earnings growth. Key to the market’s reaction will be what these companies say about expectations for the next quarter or two. Will they emphasize what are already clear slowdowns in PC and smartphone sales? Will they speak to the elephant in the room–the U.S/China trade war? Will they say that a strong dollar plus inflation is cutting into sales outside the United States and U.S. sales to domestic customers who are showing signs of “price fatigue”?
Earnings forecasts are falling as we get close to the end of the quarter on September 30 and the start of earnings season in early October. Aggregate earnings per share estimate for companies in the Standard & Poor’s have dropped 5.5% in the past two months, according to Credit Suisse.
Lithium producer Albemarle (ALB) closed up 2.71% today after hitting an all-time high of $298.17 in intraday trading. The shares closed at $295.68. The gains for Albemarle, and across the lithium sector, came as Goldman Sachs upgraded lithium battery maker Freyr Battery (FREY) on projected higher demand for lithium batteries after the Inflation Reduction Act. Albemarle is a member of my Jubak Picks Portfolio where it is up 200.18% since my August 10, 2018 stock pick. The stock is also a member of my long-term 50 Stocks Portfolio where it is up 221.67% since February 17, 2017.
After looking like it was over earlier in the week with a significant pull back on Tuesday, July 26, stocks have rallied in the last two days, gaining 3.85% by the Thursday, July 28 close from that Tuesday low. And right now all the ducks are lined up in a row for a strong move higher. (But you know what they say about Bear Market rallies right? They’re really hard to trade and they’re even harder to sell into.)
Those ducks?
We’ve had a great one-week rally/bounce/whatever in chip stocks. Nvidia, for example, was up 17.42% for the week that ended on Thursday, July 21. Advanced Micro Devices (AMD) was up 8.71% in that same period. But I think there are good reasons for thinking that this move was just a very short-term gain in a long-term Bear Market that remains in place. So today, I’m taking some chip money off the table.
In the last week Technology stocks, and chip stocks in particular, have staged a very impressive rally off of a really low base. Nvidia (NVDA), for example, is up 17.43% in the week that ended on July 21. That still leaves the stock down 39.43% for the year. Advanced Micro Devices (AMD) is up 15.36% in the last week. And it’s still down 37.85% for 2022. Qualcomm (QCOM) is up 1.85% for the week. And down 16.26% for the year. Impressive. But I’d be more inclined to see this as a sustainable rally if stocks were rising across the board–with tech and chips leading the way, perhaps.
Instead what I’m seeing is a rotation from safe and less risky stocks
