Semiconductors face serious risks as KeyBanc warns of potential 40% drop
- KeyBanc Capital Markets has projected a potential 30-40% decline in semiconductor stocks if a recession occurs.
- Concerns over the economy have increased due to recent reciprocal tariffs imposed by the U.S.
- Investors are advised to exercise caution given the historical volatility and unrealistic expectations surrounding companies such as AMD.
In the United States, analysts from KeyBanc Capital Markets have projected a significant downturn for semiconductor stocks, potentially declining by 30-40% if the economy enters a recession. They note that recent reciprocal tariffs imposed by the U.S. have raised concerns about an impending economic slowdown. Current semiconductor stock prices are under pressure, having already dropped 7% since early April 2025, and down 18% year-to-date. Major companies such as Nvidia and Advanced Micro Devices have expressed concerns over expected financial impacts from export restrictions to China, which could exacerbate the pressures in the semiconductor market. Further analysis suggests that the semiconductor industry is prone to severe market fluctuations, evidenced by instances where companies experienced drops of up to 50% in value over brief periods. The findings of recent market research indicate that investors must be cautious regarding expectations of high margins reminiscent of tech giants such as Google. AMD, for instance, is reportedly trading at a much higher price-to-earnings ratio compared to Google, leading analysts to caution that current market optimism may be unrealistic. Analyst John Vinh highlights that the normalization of semiconductor inventory levels in the first half of 2025 might lead to some recovery in the latter half of the year. However, the ongoing tariff situation remains uncertain, adding another layer of complexity to the market environment. Vinh suggested that investors should focus on stocks which may benefit from advancements in generative artificial intelligence or those that are further along in their destocking cycle. However, he maintains a cautious outlook on overall market conditions given the current economic indicators. In light of these analyses, the semiconductor sector is entering a precarious phase, with looming fears of additional economic downturns as trade tensions continue. Both Nvidia and Broadcom have been singled out as companies that could offer more stable returns amidst the volatility, with predictions of strong upside potential despite the current pressures in the industry. The overall sentiment points toward a turbulent climate for semiconductor stocks, reinforcing the need for investors to reassess their strategies moving forward.