Latest stock trends show AI-driven uptick in demand for semiconductors is probably an outlier.
A rebound in semiconductor stocks may not signal “good news for the broader enterprise tech sector”, according to a report in SiliconANGLE.
This week SiliconANGLE’s Co-CEO Dave Vellante published a “Breaking Analysis” that looked at the rise in semiconductor stocks and what that could mean overall for enterprise tech. First, Vellante notes that the SOXX semiconductor ETF is up nearly 30% year to date. SOXX is and Exchange-Traded Fund (ETF) that tracks a modified market-cap-weighted index of 30 US-listed semiconductor companies. These include Applied Materials, Lam Research, which followed the 30% trend. The trend was even beaten by some high performers such as Nvidia, which was up 90%, and AMD, which was up over 50%. Even “beleaguered” Intel posted a 22% gain, Vellante observes.
The analysis then proceeds to determine whether the performance of semiconductors is an early indicator of a broader enterprise tech recovery, or “a false signal that warrants continued caution”. To find his answer, Vellante consults with Ivana Delevska, the founder and chief investment officer of SPEAR Invest. Delevska points out that semiconductor stocks are cyclical in nature, but may not indicate an overall cyclical rebound for IT.
Cloud sector is dragging overall IT spending down
The main factor dragging IT spending down is the lagging cloud sector, she explains, noting that cloud spend is a much higher proportion of tech spend today than it was during the last big downturn in 2008/2009. “Cloud optimization has created a downdraft across enterprise tech”, Vellante writes.
Vellante Delevska go on to look at data from Enterprise Technology Research, a research company that interviews Information Technology Decision Makers (ITDMs). ETR’s data shows that companies are still looking to cut costs. “Delaying or canceling new projects, cutting staff, reducing hardware spend and spending less on consultants now comprise the top techniques to save money”, Delevska observes, adding that such measures have eclipsed consolidating redundant vendors and optimizing cloud spend.
At this point, Vellante tentatively draws what looks to be a conclusion. “Our view is this data suggests we still have a ways to go because if buyers are canceling projects and cutting staff, restarting them will take a bit of time”, he writes.