Chip Stocks Are Down a Third While Earnings Estimates Keep Hitting Highs

Chip Stocks Are Down a Third While Earnings Estimates Keep Hitting Highs

The Philadelphia Semiconductor Index has fallen from its mid-year peak to around 9,280, down more than 30%. Over the same stretch, analysts' earnings estimates for those companies kept climbing, with the latest reading at a fresh high.

Two lines moving apart does not mean one of them is wrong.

Sell-side estimates are built bottom-up from company guidance, and companies guide once a quarter. Price votes every day on next year's profits, while the estimate gets one scheduled update per quarter and relies on analysts adjusting by hand in between. Put two different refresh rates on one chart and you get what looks like a divergence.

The same shape appeared in 2022: price fell first, and estimates held up for roughly two quarters before being cut. The question now is not which line leads, but when estimates turn and how much comes off when they do.

One caution: this chart is a poor basis for a valuation multiple. Whether the right axis shows a two-quarter or a full-year figure changes the answer several times over.

Source: Philadelphia Semiconductor Index and analyst earnings estimates (Image: @RenMacLLC)