The speed bump in the AI-chip trade, in one chart
The market seems to have gotten over Tuesday’s news of a sharp slowdown in orders for the most sophisticated chipmaking machines on earth.
Global semiconductor shares are rebounding a bit on Wednesday, a day after ASML, the Dutch chip-equipment-maker at the heart of the semiconductor boom, tanked giants like Nvidia and Broadcom.
If you want to know why investors hit the brakes on the AI-chip trade yesterday, look no further than this chart:
As part of ugly earnings results released Tuesday, ASML said the value of the new orders it booked in Q3 halved from Q2 levels, down to €2.6 billion ($2.74 billion), far below analysts’ expectations of roughly €4.1 billion.
The miss raised questions about the durability of demand for chip equipment, and by extension, whether the market’s AI-fueled bullishness over chip stocks may have gone way beyond what’s justified by fundamentals.
High-flying chip shares, many of which have been key drivers of this year’s stock market rally, tumbled in response: Nvidia dropped more than 4%, Broadcom fell more than 3%, Applied Materials slid more than 10%, and Arm Holding fell nearly 7%.
But so far Wednesday morning, they’ve recovered some of those gains (see VanEck Semiconductor ETF rising), with the emerging consensus being that ASML’s orders reflect struggles in non-AI chipmaking, rather than in the area of the market folks are most excited about.
Another related explanation centers on the fact that Chinese buyers may have pulled forward orders to try to get ahead of any additional trade tensions that could emerge throughout the US election season.
So after a brief wobble, the chip-stock rally seems to be back on track — though the scale of the miss from ASML should highlight the risk that stock-market enthusiasm could be getting slightly ahead of business realities.
