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Introduction

Applied Materials (AMAT), a constituent in our Pure-Play Semiconductor Suppliers Portfolio, dropped sharply during the week ending August 15th.

What Is The AI Hardware Segment?

The AI hardware segment is comprised of 6 distinct sub-segments of which the first 4 are referred to as the links in the semiconductor value chain, namely:

1. Design companies that use sophisticated electronic design automation (EDA) software to design semiconductors (aka chips)
   • Cadence Design Systems; and Synopsys
2. Suppliers of essential equipment and production materials for manufacturing chips 
   • Applied Materials; ASML Holding; Entegris; KLAC Corp.; and Lam Research
3. Manufacture (or fabricate in semiconductor jargon) chips in foundries based on the designs provided by other semiconductor companies
   •  GlobalFoundries; Taiwan Semiconductor; Tower Semiconductor; and United Microelectronics
4. Companies that assemble chips into finished semiconductor components, tests for defects and package chips for shipping
   • Amkor Technology and ASE Technology  

The other 2 segments are:

1. Manufacturers that design and sell hardware devices and semiconductor chips themselves while outsourcing their fabrication (i.e. are fabless) to a specialized manufacturer
   • Advanced Micro Devices; Broadcom; Marvell; Monolithic Power; Nvidia; and Qualcomm 
2. Companies that do everything themselves in house to control the entire production process, i.e. are integrated device manufacturer 
   • Analog Devices; Infineon Technologies; Intel Corp.; Microchip Technology; Micron Technology; Texas Instruments; NXP Semiconductors; and STMicroelectronics 

Below are the key reasons for the major decline in AMAT:

1. Soft Q4 Guidance: revenue is forecast to be 8% below Wall Street’s consensus forecast with EPS missing consensus by 11% with management citing weakening demand in China tied to ongoing semiconductor tariff talks which signaled a potential slowdown in demand for semiconductor manufacturing equipment and increased uncertainty in its international business.
2. Analyst Downgrades: 10 of the 26 analysts that cover Applied Materials stock downgraded their price targets but the consensus is still a  "Buy" with an average price target forecasts of a 23.00% increase in the stock price over the next year. This tepid reaction, however,   amplified bearish sentiment and triggered heavy selling.
3. Heavy Options Trading; Normal volume in option trades increased 12-fold piled into puts which showed a strong bearish positioning.
4. Industry Headwinds: Investors punished those companies, like AMAT, that are exposed to slowing consumer electronics and traditional chip equipment in favor of companies tied to the AI boom like Nvidia.

The Pure-Play Semiconductor Suppliers Portfolio

Below are how the 5 constituents performed last week, in ascending order:

1. Applied Materials (AMAT): DOWN 12.5%
2. KLAC Corporation (KLAC): DOWN 4.4%
3. Entegris (ENTG): UP 1.9%
4. ASML Holding (ASML): UP 2.7%
5. Lam Research (LRCX): UP 3.3%

Summary

The Pure-Play Semiconductor Suppliers Portfolio was DOWN 1.9% w/e August 15th and is now DOWN 1.5% MTD but remains UP 18.0% YTD.

Go HERE to create a chart of the portfolio's performance

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