Morgan Stanley Hits 2 Chip Stocks with Downgrades

Analyst Joseph Moore cut his ratings on AMAT and ON as part of a cautious note on semi stocks

Aug 9, 2018 at 9:09 AM
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Morgan Stanley this morning downgraded its rating on the U.S. semiconductor sector to "cautious" from "in-line," with analyst Joseph Moore noting that tense U.S.-China trade relations and expected declines in DRAM pricing are among the headwinds facing the group. "Cyclical indicators are flashing red and any contraction in lead times and/or demand slowdown could lead to a significant inventory correction," wrote Moore.

Along with this broader sector downgrade came individual cuts for Applied Materials, Inc. (NASDAQ:AMAT) and ON Semiconductor Corp (NASDAQ:ON). AMAT was lowered to "equal-weight" from "overweight" with a price-target cut to $54 from $58, while ON was reduced to "underweight" from "equal-weight" and issued a price-target cut to $18.50 from $20.

In response to the news, AMAT is trading down 2.6% at $48.90 in pre-market action. The stock had settled Wednesday above its 80-day moving average for the first time since mid-May, but it's now set to open back below this descending trendline. Through last night's close, the shares were down 1.8% year-to-date.

Given the equity's disappointing price action, there's plenty of room for more analysts to follow Morgan Stanley's lead and hammer AMAT with more downgrades. Currently, the stock sports no fewer than 14 "strong buy" ratings, compared to three "holds" and zero "sells."

ON stock is down 3.7% pre-market to trade at $21.60. The shares tumbled through tenuous support at their 200-day moving average in late July, with the $21.50 area providing a floor for the recent lows -- just as it did in early May. If this support level gives way, ON could soon be on pace to test its year-to-date breakeven point at $20.94.

As with AMAT, most analysts remain upbeat on ON, which opens the door for additional downgrades in the short term. A dozen analysts have deemed the stock worthy of a "buy" or better rating, compared to just five "holds" and zero "sells."
 

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