Plunge in Semiconductor Stocks Today Drags the SOXL ETF Down

  • Micron (MU) reported an earnings beat, but delivered terrible guidance. Despite this, the stock is only down about 4% on the day.
  • The VanEck Semiconductor ETF (SMH) fell almost 5% and the Direxion Daily Semiconductor Bull 3X Shares (SOXL) tumbled almost 15% in response.
  • Despite this, some may look at the action optimistically, noting the strength in other semiconductor stocks and the somewhat mild reaction in Micron stock despite the poor guidance.
Semiconductor stocks - Plunge in Semiconductor Stocks Today Drags the SOXL ETF Down

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Semiconductor stocks are an important bellwether for investors. Because they are used in so many of today’s current industries, these end markets can provide investors with the economy’s temperature. On Friday, that temperature is spiking a fever, as the VanEck Semiconductor ETF (NASDAQ:SMH) falls almost 5% and the Direxion Daily Semiconductor Bull 3X Shares (NYSEARCA:SOXL) tumbles almost 15%.

This comes as semiconductor stocks are under notable pressure following earnings from Micron (NASDAQ:MU). For its part, Micron stock is down about 4% on the day at the time of writing. However, one could argue that this is actually bullish for semiconductor stocks. It’s not so much the news — which actually was bearish — but the reaction to the news that we’re watching.

Micron’s earnings of $2.59 a share beat expectations by 15 cents, while revenue of $8.64 billion grew 16.4% year-over-year and was in line with expectations. As is usually the case though, guidance was the culprit. The midpoint of management’s fourth-quarter revenue and earnings guide was $7.2 billion and $1.63 a share, respectively.

Consensus expectations called for $9.13 billion in revenue and earnings of $2.58 a share. In total, Micron missed those estimates by about 21% and 37%, respectively.

Therein lies the silver lining, though. To see such a big miss and the stock only down 4% may actually bode well for Micron and semiconductor stocks. Remember, investors are focusing on the reaction to the news, not the news itself.

Where to From Here for Semiconductor Stocks?

The environment has not been forgiving for investors, nor has it been easy. At today’s low, the SMH ETF was down 39.5% from its high. The SOXL ETF has obviously performed much worse, down 85% from the high. However, at some point the market will have fully discounted the slowdown in this group.

We’ve heard from other companies, and they certainly did not give a guide down like Micron did. Taiwan Semiconductor (NYSE:TSM) provided a strong quarter and outlook in April. Advanced Micro Devices (NASDAQ:AMD) did the same in May. Obviously both are different than Micron, and while management may see a change of tune this quarter, nothing has indicated such a dramatic slowdown is around the corner.

Remember, Taiwan Semiconductor has some of the best numbers in the business, so this will be a big one to watch when it reports earnings on July 14. In that sense, investors looking for a clue on semiconductor stocks should be focusing on these results.

If the global economy really does fall off a ledge, the SMH ETF, SOXL ETF and semiconductors as a whole will feel more pain. But for now, it may be worth keeping an eye on this group as many stocks have already but cut in half from the highs and we’re seeing only a slightly bearish reaction to what was a rather bearish earnings report from Micron.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


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