For the first time in a long time, it’s no fun to be holding chip stocks.
What happened: Shares of semiconductor companies around the world plummeted yesterday, extending a rout that began last week and dragging the Nasdaq down towards correction territory — 10% below a recent high.
Darlings of the AI boom that saw their stocks rocket earlier this year got hit hardest: SanDisk is down nearly 30% over the past week, Western Digital is down 14%, Micron is down 16%, and AMD is down 14%.
The iShares Semiconductor ETF, which tracks a basket of chip companies, is down 16% this month, its worst performance since 2022.
Why it’s happening: Investors are spooked by the increasingly eye-popping revenue that tech companies will have to earn to justify the sums they’ve allocated to the data centres, energy, and other infrastructure needed to run their AI models — more than US$5 trillion between Alphabet, Amazon, Meta, and Microsoft through 2030.
If that revenue doesn’t materialize, demand for chips will likely dry up fast and a glut of inventory could crash prices for the ‘picks and shovels’ of the AI buildout.
There’s also a risk that lower-cost open-source AI models from China could weigh on demand for computing power, and that upstart Chinese chipmakers could cut into the margins of incumbent manufacturers.
Why it matters: The AI boom has fuelled a historic run-up in stocks, but that could reverse just as quickly if the story underpinning it begins to crack. Today and tomorrow will be important tests of that, as Microsoft, Meta, and Amazon all report earnings.—TS
