(Bloomberg) -- This year’s AI stock frenzy has papered over cracks in the semiconductor market. Beyond the enthusiasm for the likes of Nvidia Corp. and Advanced Micro Devices Inc., it’s a mixed picture for investors. 

Recent earnings pointed to slumping industrial and networking chip markets, while some on Wall Street are bracing for the impact of a potential economic slowdown on automobile chips. On the flip-side, smartphone components and personal computers look set for recovery, according to Samsung Electronics Co. and Intel Corp.

“It’s important to avoid painting semis with a broad sector brush,” said Brent Fredberg, portfolio manager at Brandes Investment Partners. “The concern is that the industry may now be entering a period of excess inventory digestion.” 

Broadcom Inc., which has gained 62% this year, is due to report earnings late Thursday. Its performance and outlook should provide a window into the various forces driving the industry’s prospects. While it makes networking gear and some custom chips that have played a role in the massive run up in investment in AI infrastructure, the firm has a broad set of products going into automotive, industrial equipment, data centers and smartphones.

Lurches between boom and bust are nothing new for the industry. Chipmakers have consistently failed to match long-term planned introductions of new supply with short-term swings in demand, creating often vicious cycles. Just two years before shortages of the pandemic caused widespread panic across the economy, chipmakers and their customers were awash with inventory and orders dried up. Now some of them are in that same boat again.

“The automotive and industrial end-markets remain in the midst of a cyclical correction as customers digest inventories, which we expect will trough within the next 4 months,” Angelo Zino, vice president and senior equity analyst at CFRA Research wrote in a report. While smartphones and PCs appear to be stabilizing, “whether this momentum is sustainable into 2024 remains to be seen,” he added. 

Many industry executives have argued that the breadth of demand for semiconductors across so many products offers some insulation from downturns. But the diverging behaviour of that more varied line up of markets has made the job of investing at the right time in the cycle more difficult.

Philadelphia Stock Exchange Semiconductor Index laggard Texas Instruments Inc., down 5.6% this year, has one of the broadest ranges of customers and products across the chip business. It said the key industrial market got weaker in the third quarter, contracting about 5%. Revenue related to communications components dropped more than 10%. 

Read more: Texas Instruments Forecast Signals That Slump Is Persisting 

Elsewhere, the rapid run up in demand for auto chips may have overshot. The third quarter was the fourteenth in a row that automotive semiconductor revenue has exceeded projections, according to New Street Research analyst Pierre Ferragou. The amount of chips per car continue to increase but “has started to normalize” he wrote in a report. Automakers on aggregate are no longer adding to their inventory stockpiles, while car dealerships have record levels of vehicles on their lots — signaling the likelihood of a correction, he wrote.

Still, some companies appear to be through the worst. Micron Technology Inc., the largest US maker of computer memory semiconductors, raised its revenue guidance for the first quarter late last month citing an improving price environment now that the slump in PC and smartphone demand is easing. 

Systems being built around Nvidia processors will need memory and many other chips to support them, according to Thomas Martin, senior portfolio manager at Globalt Investments. But it won’t make them immune to the next downturn.

“Every time you say that about the chips, they always surprise you and the cycle happens anyway,” said Martin. “So you have to be wary.”

Tech Chart of the Day

Apple Inc., the world’s most valuable publicly-listed company, is getting closer to overtaking Europe’s largest stock market: France. The combined market capitalization of primary listings in Paris  — excluding ETFs and ADRs — is now about $3.1 trillion versus the iPhone maker’s $3 trillion, according to an index compiled by Bloomberg. Apple shares rose 0.8% on Thursday. 

Top Tech Stories

  • Advanced Micro Devices Inc., taking aim at a burgeoning market dominated by Nvidia Corp., unveiled new so-called accelerator chips that it said will be able to run artificial intelligence software faster than rival products.
  • Apple Inc.’s senior executive overseeing touch-screen technology, health sensors and the company’s Face ID interface is leaving the company, according to people with knowledge of the matter.
  • Elon Musk’s SpaceX has initiated discussions about selling insider shares at a price that values the closely held company at $175 billion or more, according to people familiar with the matter.
  • SpaceX’s Starlink satellite service successfully completed nine months of US military tests in the Arctic, potentially clearing the way for Musk to deepen his ties with the Pentagon in a region of growing strategic competition.
  • C3.ai Inc. reported quarterly revenue that fell short of analysts’ estimates and gave an outlook for an operating loss in the fiscal year that was worse than projected. The shares dropped about 9% in extended trading.

Earnings Due Thursday

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--With assistance from Ryan Vlastelica and Michael Msika.

(Updates to add stock move in the Tech Chart of the Day section.)

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