Some Wall Street analysts are bailing on key chip stocks because of the coronavirus threat

Published Tue, Feb 25 20207:51 AM ESTUpdated Tue, Feb 25 20204:01 PM EST

(This story is for CNBC Pro subscribers only.) The threat to global growth and Asian supply chains from the coronavirus is causing some Wall Street analysts to throw in the towel on chip stocks. Bank of America downgraded shares of Micron to underperform from buy, based on a potential earnings miss or guidance cut from the impact of the coronavirus. Micron gets about 50% of its revenues from China. Bank of America also lowered its price target to $50 per share, helping to send the stock down 5.3% on Tuesday. The firm lowered its view on the whole memory chip sector as well. Nomura Instinet downgraded shares of semiconductor company Nvidia to reduce from neutral and slightly lowered its 12-month price target to $230 from $235. Shares of Nvidia were down 4.1% on Tuesday. "We think the economic dislocations resulting from the COVID-19 outbreak pose risk to demand in most electronic end markets, though we believe the end markets associated with consumer purchases might have the most potential downside," Nomura analyst David Wong said in a note to clients on Monday. Amid the worst market sell-off in two years, chipmakers took a beating on Monday. Shares of Nvidia fell about 7% and shares of Micron fell nearly 4% as a spike in coronavirus cases outside of China spooked investors. Chipmakers have been among the hardest hit on concerns of slowing global growth resulting from the coronavirus outbreak and now Wall Street analysts are raising flags about the virus's impact on China's tech supply chain and what it means for the chip names. "We previously assumed that disruption in China tech supply chain will be normalized from mid- to late-2Q, and we still assume normalized smartphone assembly for 2H. However, our latest checks reveal that new memory chip orders (for 2Q and even 2H) have started to decline," Bank of America analyst Simon Woo in a note to clients on Tuesday. Woo said this becomes problematic in making items like phones, TVs and game consoles that the chips are used in, a more recent issue in Korea. The number of people effected by the virus in Korea has increased in the past few data and media reported a temporary shutdown of Samsung's smartphone assembly line that should last a least a few days. "We do not see any meaningful progress in China's tech supply chain — only partial resumption of smartphone production," said Woo. Bank of America sees a chip weakness bottom in the first quarter, but problems with China's manufacturing capabilities suggests a weaker recovery to second-quarter earnings. — with reporting from CNBC's Michael Bloom.

Kai Pfaffenbach | Reuters

(This story is for CNBC Pro subscribers only.)

The threat to global growth and Asian supply chains from the coronavirus is causing some Wall Street analysts to throw in the towel on chip stocks.