Chips look cheap but demand woes keep bulls away

While that has left stocks looking cheap, most investors expect things to get worse for the chip industry-- especially if weakness spills over from consumer products into areas like enterprise spending and cloud computing.

"Semi downturns happen every 3-4 years, and we could be due for another one," Bank of America analyst Vivek Arya wrote last week, saying that tighter monetary policy, geopolitical turmoil, and consumer weakness will pressure demand into 2023.

Falling demand marks a shift from 2020-2021, when the industry was struggling with a Covid-driven global supply crunch, and is also an ominous sign for the health of the broader economy, given the prevalence of chips in everything from cars to appliances, gaming and artificial intelligence.

Jordan Klein, a managing director and tech analyst at Mizuho Securities, also believed income estimates need to come down more for chip makers to look attractive. "We don't have any visibility into how soft 2023 could be, and while numbers could start improving soon, I don't want to make that bet when the Fed is getting more hawkish and we have the downside risk of a recession", he wrote.