U.S. chip stocks, still down sharply off their highs following a rebound over the past two weeks, are poised to suffer through another series of down drafts in 2019, according to a Morgan Stanley report, per Business Insider. The investment firm highlighted at risk semiconductor names, including memory companies Micron Technology Inc. (MU) and Western Digital Corp. (WDC); analog companies Texas Instruments Inc. (TXN) and NXP Semiconductors NV (NXPI); and microcontroller unit companies Cypress Semiconductor Corp. (CY) and Microchip Technology (MCHP).

6 Vulnerable Chip Stocks 

  • Cypress Semiconductor Corp.
  • Microchip Technology
  • Micron Technology
  • NXP Semiconductors
  • Texas Instruments
  • Western Digital Corp.

Sharp Contraction in Revenues for 2019

Morgan Stanley’s Joseph Moore expects semiconductor companies, which make chips for servers, automobiles and a wide variety of devices like smartphones, to see revenues fall by 5% this year. Forecasts for a “sharp contraction” in top line numbers for chip makers comes after industry data was released indicating that semiconductor sales rebounded in November after a disappointing October. Morgan Stanley expects total chip industry revenue to increase by 13% to 14% for 2018, and grow in the low-single-digits in Q4.

The firm attributes its pessimistic view to a number of challenges facing the industry, including excess inventory, slowing demand, China trade tensions and a deceleration in M&A activity. 

Chip makers, which maintain most of their manufacturing in China, have been hard hit by fears of a trade war between Washington and Beijing.

"We remain cautious on semis," wrote Moore.

Apple Lowers Outlook

Goldman’s bearish report was published just a day before Apple Inc. (AAPL) made an announcement cutting its revenue outlook for Q4. Shares of the iPhone maker tumbled nearly 10% on the news, dragging down shares of suppliers including Intel Corp. (INTC) and Qualcomm Inc. (QCOM) with it. Apple CEO Tim Cook attributed the lower guidance on a downturn in the Chinese economy and strained relations between the U.S. and China.

Semiconductor companies are slated to report Q4 results over the next few weeks. Investors will be looking out for signs of trouble in year-end results as well as first quarter guidance. 

Despite the myriad of negative headwinds facing chip makers, it’s important to note that this sector can rebound quickly on changes in investor sentiment. Nonetheless, investors would be wise to remain cautious within the space, given the broader economic outlook doesn't bode well.