SUPERNEWS

Macro

Nvidia, Chip Stocks Enter 10% Correction Amid Rate, China Woes

Semiconductor stocks, including Nvidia, enter correction amid rate cut delays and China's economic concerns, impacting sector outlook.

By Barry Stearns

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4/18, 01:17 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Advanced Micro Devices, Inc.
ASML Holding N.V. - New York Registry Shares
Intel Corporation
NVIDIA Corporation
QUALCOMM Incorporated
Taiwan Semiconductor Manufacturing Company Ltd.
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Key Takeaway

  • Nvidia and the Philadelphia Semiconductor Index enter a correction, dropping over 10% from March highs amid rate cut and China economy concerns.
  • ASML Holding NV's disappointing orders highlight sector challenges; TSMC earnings are highly anticipated for demand insights.
  • Major losses in AMD and Intel significantly contribute to the semiconductor index's correction, with both stocks down over 20% since March.

Semiconductor Sector Correction

The Philadelphia Semiconductor Index and Nvidia Corp, a key player in the AI and global chip stock market, have entered a technical correction, declining more than 10% from their peak levels in March. This downturn reflects broader market concerns, including delayed Federal Reserve interest rate cuts and economic weaknesses in China. ASML Holding NV, a major Dutch chipmaking equipment firm, experienced a significant drop after reporting disappointing orders, indicating a cautious approach from top customers amidst existing stockpiles. However, China's demand for less sophisticated machines remains stable, despite U.S. restrictions on high-tech equipment access.

Earnings Season Uncertainty

The early earnings reports, particularly from ASML, have cast a shadow over the semiconductor sector, which was anticipated to lead the first-quarter earnings season with substantial growth. ASML's missed bookings have raised doubts about the expected semiconductor boom in 2025, highlighting the sector's vulnerability to high expectations. The semiconductor and semiconductor equipment segments were projected to see the most significant earnings per share (EPS) growth within the information technology sector, according to Bloomberg Intelligence data. This underperformance has broader implications for the tech-driven earnings season, with semiconductor stocks lagging behind the Nasdaq 100 and S&P 500.

Market Reactions and Outlook

Following ASML's announcement, major semiconductor companies like AMD, Nvidia, Intel, Qualcomm, and Arm saw their stock prices fall, with Arm experiencing nearly a 10% drop. ASML's bookings decline, a steeper fall than anticipated, signals potential challenges in the semiconductor industry's cyclical nature. This downturn could impact the sales of chip companies to end customers and the revenue of licensing companies like Arm. However, ASML's CEO Peter Wennink expressed optimism for a stronger second half of 2024, anticipating a recovery from the current downturn and highlighting the potential impact of government subsidies for chip factories on future sales.

Street Views

  • Amir Anvarzadeh, Asymmetric Advisors (Neutral on the semiconductor sector):

    "While optimism has been priced into some chip stocks, we suspect the sector could rebound after TSMC’s numbers, which we think should be solid... there are concerns about spending on mature nodes given the massive overcapacity being built in China."