The Mobileye Terrify

The Mobileye Terrify
Paul Allison, CFA

about 2 months ago2 mins

Mentioned in story

Mobileye, the self-driving technology maker, stunned investors with a grim warning last week, saying revenues for this quarter would be far below the last – and roughly 26% below analysts’ expectations for the whole year. Bosses blamed a buildup of excess inventory by its top-tier customers (who count among them BMW, Volkswagen, and Nissan). The firm’s shares responded accordingly: plunging more than 30%.

This was bad news for investors and for the already struggling Intel, which owns nearly 90% of the Israel-based firm. But it should also serve as a reminder that, even in this AI era, not all semiconductor firms are created equal. Sure, Nvidia may have spent 2023 watching its shares skyrocket, but it was a year to forget for most regular semiconductor firms. They’ve been trying to sell excess inventory ever since the Covid boom fizzled in 2021.

Automakers have generally been helping with that. After all, the industry was already a pretty big semiconductor customer and it’s been bulking up its orders since electric cars require a lot more chips than regular ones. And that’s why this inventory warning has been such a shocker. Now, this might just be a Mobileye problem, but if it’s not, it could signal another rough patch for the semiconductor industry – an industry that was hoping 2024 would finally be a recovery year.

If there’s a silver lining here, it’s this: semiconductor-buying industries are showing they can go their own way. And, yeah, that might not be a great thing for investors who are looking to ride the mindless super waves higher, but it does mean there’s potential for smoother profit growth for firms. And, ultimately, that may result in a better, less volatile investment prospect.

Like a lot of things, then, this all comes down to the short-term play versus the long-term. Shorter-term traders might want to take a long hard look at the auto industry before betting on a broad semiconductor upturn. Longer-term thinkers might want to ponder the benefits of a better-diversified semiconductor firm with potentially smoother profit cycles. Lower volatility should, in theory, lead to higher valuations.

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