Chip stocks just got sent a big warning

By James Rogers

Semiconductor stocks are feeling the impact of Texas Instruments' third-quarter results

Texas Instruments just sent a grim warning about the state of the semiconductor industry, and stocks across the sector are feeling the impact.

The chip maker, which historically reports early in the earnings cycle and is viewed as an industry bellwether, cited weakening industrial demand Tuesday afternoon as it underwhelmed with its forecast. That struck one analyst as a "negative" read for the broader sector, especially those companies exposed to industrial trends.

Related: Texas Instruments' stock slides after 3Q revenue miss, weak guidance

"Texas Instruments' (TXN) weaker than expected Q4 outlook will likely weigh on semi stock performance over the next few days until we get additional reads from other companies," Truist Securities analyst William Stein wrote as he lowered his price target to $150 from $165 and kept a hold rating on the stock.

Stein pointed to the weakening in the industrial market identified by Texas Instruments. "We believe it's fair to assume that the weak Q4 outlook is related to a continuation of that trend," the analyst added, noting that this is most problematic for Analog Devices Inc. (ADI), Microchip Technology Inc. (MCHP), Arrow Electronics Inc. (ARW) and Avnet Inc. (AVT), all of which have industrial exposure.

Analog Devices shares are down 2.3% Wednesday, while Microchip Technology is down 4%. Shares of Arrow Electronics are down 0.4% and Avnet's stock is down 0.6%.

Texas Instruments shares, meanwhile, are down 3.8%.

The broader chip market also seemed to be feeling the impact of Texas Instruments' commentary. Shares of chip giant Intel Corp. (INTC) are down 2.5%, while Advanced Micro Devices Inc.'s stock (AMD) is down 1.7%. NXP Semiconductors' stock (NXPI) is down 2.8% and STMicroelectronics' stock (STM) is down 1.8%. Shares of Micron Technology Inc. (MU) are down 0.2%.

Read: Dividend stocks are dirt cheap. It may be time to back up the truck.

Despite the chipmaker's challenges, Benchmark maintained its buy rating and $210 price target for Texas Instruments.

"We believe TI is among the best positioned large-cap stocks to deal with the current demand volatility impacting the inherent cyclicality of the semiconductor industry," wrote Benchmark analyst Cody Acree in a note released Wednesday. "If there is a relative bright spot to point out, it's that many of its sequential trends have turned more positive recently, as a good percentage of TI's business demand looks to be recently turning a corner and grew [sequentially] during the September quarter."

Of 33 analysts surveyed by FactSet, 10 have a buy rating, 19 have a hold rating, and four have an underweight or sell rating for Texas Instruments.

Texas Instruments shares have fallen 14.1% in 2023, compared with the S&P 500 index's SPX gain of 9.6%.

-James Rogers

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10-25-23 1039ET

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