After experiencing the sector’s worst daily drop since 2020, major chip stocks seemed set for a rebound on Thursday, but they fell again. Nvidia Corp. shares (NVDA, +2.33%) are down slightly, with peers seeing more significant declines. Micron Technology Inc. shares dropped 3.8%, Super Micro Computer Inc. shares (SMCI, -2.55%) fell 4.6%, and Advanced Micro Devices Inc. shares (AMD, -2.15%) decreased by 2.9%. This comes despite Taiwan Semiconductor Manufacturing Co.’s latest earnings report confirming strong demand for artificial intelligence chips.
Cantor Fitzgerald analyst C.J. Muse noted in a client note that AI continues to drive massive growth, with a shortage of AI chips extending TSMC’s expected supply/demand equilibrium from the end of 2024 to at least 2026.
Thursday’s chip-sector selloff follows a 6.8% drop in the PHLX Semiconductor Index (SOX) on Wednesday, marking its largest one-day percentage fall since March 18, 2020. The index is down 0.8% in Thursday morning trading after initially rising.
Mizuho analyst Jordan Klein commented that semiconductor stocks are not yet in the clear, despite TSMC’s report. He mentioned that a decline in the stock and sector, despite positive results, indicates a short-term trend of unwinding and de-grossing ahead of upcoming earnings reports.
Wednesday’s selloff was influenced by geopolitical concerns, including potential Biden administration restrictions on semiconductor exports to China and comments from former President Donald Trump about Taiwan. Trump suggested in a Bloomberg Businessweek interview that Taiwan should compensate the US for defense, given its significant role in the chip industry.
Many semiconductor stocks have performed well this year, but investors have recently rotated out of highflying names, opting for stocks that could benefit from potential interest rate cuts or a second Trump presidency. Robert Maire of Semiconductor Advisors pointed out that these stocks were already at high valuations and were overheated.
Despite the selloff, Cantor’s Muse suggested that TSMC’s solid report could ease fears and recommended adding to positions. BofA analyst Vivek Arya advised investors to focus on fundamentals, noting that the rotation away from AI and data-center semis towards industrial, auto, and consumer sectors is not supported by fundamentals and likely represents short-term positioning. Arya highlighted the opportunity in stocks with strong profitability profiles, including Nvidia, Broadcom Inc. (AVGO, 0.50%), and Arm Holdings PLC (ARM, -3.24%).
