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Many Tech Stocks Get Downgraded as Nasdaq Bounces Back Above 8,600

Apple, Cisco Systems and several chip stocks are among the tech companies to have seen ratings cuts this week.
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As the Nasdaq has rallied above 8,500 this week, a long list of well-known tech companies have been downgraded by analysts raising concerns about valuations and/or demand trends.

To be fair, there have been a few upgrades as well -- Workday  (WDAY) - Get Workday Inc. Report, GoDaddy  (GDDY) - Get GoDaddy Inc. Class A Report and Zynga  (ZNGA) - Get Zynga Inc. Report are among the tech firms to see their ratings hiked this week. But these moves have been easily outnumbered by downgrades.

Goldman Sachs analyst Rod Hall made headlines on Friday when he downgraded Apple  (AAPL) - Get Apple Inc. Report to Sell in the wake of its recent rally. Hall forecast iPhone unit sales will drop 36% annually in the June quarter, while also predicting that iPhone average selling prices (ASPs) will come under pressure and that Services segment growth will slow considerably next year.

In addition to Apple, Hall downgraded Qualcomm  (QCOM) - Get QUALCOMM Incorporated Report, Sonos  (SONO) - Get Sonos Inc. Report, Lumentum Holdings  (LITE) - Get Lumentum Holdings Inc. Report and Nutanix  (NTNX) - Get Nutanix Inc. Report. On the flip side, he upgraded telecom equipment makers Juniper Networks  (ADTN) - Get ADTRAN Holdings Inc. Report and Adtran  (ADTN) - Get ADTRAN Holdings Inc. Report.

Separately, KeyBanc Capital’s Alex Kurtz downgraded Cisco Systems  (CSCO) - Get Cisco Systems Inc. Report to Sector Weight on Friday, while forecasting a slowdown in hardware upgrades. The downgrade comes a week after enterprise networking rival Extreme Networks  (EXTR) - Get Extreme Networks Inc. Report issued a March quarter sales warning, while citing COVID-19’s impact on both demand and Extreme’s supply chain.

With the Philadelphia Semiconductor Index having risen more than 30% from its March lows, a long list of chip stocks have also seen ratings cuts. Qualcomm  (QCOM) - Get QUALCOMM Incorporated Report, Taiwan Semiconductor  (TSM) - Get Taiwan Semiconductor Manufacturing Company Ltd. Report, Micron  (MU) - Get Micron Technology Inc. Report, STMicroelectronics  (STM) - Get STMicroelectronics N.V. Report and Nvidia  (NVDA) - Get NVIDIA Corporation Report were all downgraded this week, while Texas Instruments  (TXN) - Get Texas Instruments Incorporated Report was downgraded by two different firms.

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Barclays’ Blayne Curtis, who downgraded TI to Underweight on Friday, cited high inventories and TI’s auto/industrial chip exposure. Goldman’s Toshiya Hari, who downgraded TI to Sell, cited broad end-market weakness and expected analog chip share losses caused by changes in TI’s go-to-market strategy.

Hari also downgraded Micron this week, citing a less attractive risk-reward ratio following the memory giant’s recent gains. Likewise, Craig-Hallum’s Richard Shannon argued Nvidia’s risk/reward is now more balanced as he downgraded shares to Hold.

TSMC was downgraded from Positive to Negative by Susquehanna Financial on Friday, after shares rallied on Thursday in response to the company's better-than-expected guidance. Analyst Mehdi Hosseini argued that the current chip demand environment looks similar to what was seen from 2007 to 2009.

Finally, some e-commerce plays have also seen downgrades this week. BTIG’s Marvin Fong downgraded craft goods marketplace Etsy  (ETSY) - Get Etsy Inc. Report to Neutral and Morgan Stanley’s Lauren Cassel downgraded pet supplies retailer Chewy  (CHWY) - Get Chewy Inc. Class A Report to Equal Weight, with both analysts noting multiples have risen.

Square  (SQ) - Get Block Inc. Class A Report, which has rebounded to December levels in spite of its considerable local business exposure, was downgraded to Neutral by UBS and to Underperform by Raymond James.

UBS’ Eric Wasserman declared he no longer has conviction in his prior view that Square’s revenue growth and margin expansion will re-accelerate next year. Raymond’s John Davis highlighted Square’s SMB exposure and risks to the company’s high-margin lending business.

Though only time will tell how smart this week’s raft of tech stock downgrades end up looking, they do suggest that there are a lot of concerns on the sell-side that many tech names have become overextended, given business trends and the current macro environment.