- Dutch chip kit maker slumps 16% after revenue scare
- Leads to widespread semiconductor sector sell-off
- Orders weakness not in the AI space
Fresh off of a record close on Monday (14 Oct), Nvidia (NVDA:NASDAQ) stock fell sharply as part of a semiconductor chip stock slump after ASML’s (ASML:AMS) droopy revenue warning.
Losing 4.5% equates to a $145 billion wipe out for Nvidia. Other names like Arm Holdings (ARM:NASDAQ), Lam Research (LRCX:NASDAQ), Advanced Micro Devices (AMD:NASDAQ) and Broadcom (AVGO:NASDAQ) all suffered share price sell-offs as the Philadelphia SE Semiconductor Index lost 4%.
ASML is a big deal in the chips space – the advanced lithography machines it makes cost a fortune and are crucial in semiconductor manufacturing. This means that investors often treat it as a bellwether for the sector, but maybe the market has got it wrong.
That’s because the slowdown in orders ASML is seeing, causing a 16% sell-off in the shares, is not in the AI (artificial intelligence) area that is driving Nvidia’s racing revenues, that’s still surging. It’s more mundane areas like smartphones and car manufacturing that are in a drift.
NOT AN AI ISSUE
This is not new news. ‘Companies like Apple (AAPL:NASDAQ) have experienced tougher market conditions for smartphone sales and the electric vehicle industry is growing at a slower rate than expected, but this is old news and should have been baked into ASML’s forecasts’, said AJ Bell’s investment director Russ Mould.
Geopolitics is a potential pinch point for Nvidia. There is talk that the US wants to impose export limits on high performance AI chips used in data centres to certain parts of the Middle East as well as China. In doing so, it wants to stop certain countries from having the capability to develop advanced AI models.
Investors might view this as a headwind for Nvidia, curbing its potential to make money from pockets of the world. It introduces a negative factor to an investment story that has been almost universally good news for the past two years.
Investors will know more when Nvidia releases its own third quarter earnings next month (14 Nov). In the meantime, investors that believe in the long run potential of AI and Nvidia’s pole position in that space might see the current share price weakness as a time to top up. It proved to be the right call in both July and August this year when Nvidia’s stock wobbled similarly.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.
