Market Analysis

Chip stocks decline due to possible US AI chip export cap and ASML forecast reduction

Amos Simanungkalit · 16 Oct 202418.7K Views

Semiconductor stocks in both the United States and Asia experienced declines after ASML (AS), a leading chip equipment manufacturer, lowered its annual sales forecast due to weak demand for non-AI chips. This comes amid reports that the Biden administration is contemplating limits on the sale of advanced artificial intelligence processors to certain countries.

Nvidia (NASDAQ), a major player in the AI chip sector, saw its shares drop by 4.5%, resulting in a loss of approximately $158 billion in market capitalization, which widened the gap between its valuation and that of Apple (NASDAQ) currently valued at $3.56 trillion.

Other semiconductor companies, including AMD (NASDAQ), Intel (NASDAQ), Arm, Broadcom (NASDAQ), and Micron (NASDAQ), saw declines ranging from 3.2% to 5% at the close of trading on Tuesday. This collective downturn contributed to a nearly 5% drop in the Philadelphia SE Semiconductor Index and exerted downward pressure on the Nasdaq index.

U.S.-listed shares of ASML plummeted by 16% after the Dutch firm inadvertently published its results ahead of schedule, revealing weak bookings, a lowered forecast, and indicating a slower-than-expected recovery in chip demand outside the AI sector.

While there has been a surge in demand for AI-related chips, ASML noted that other areas of the semiconductor market are not performing as anticipated, with logic chip manufacturers postponing orders and memory chip makers planning only "limited" capacity expansions.

"The unexpected early release by ASML isn’t inherently alarming, but the information it contained was not reassuring for investors," commented Derren Nathan, head of equity research at Hargreaves Lansdown.

Shares of Asian semiconductor manufacturers, which are clients of ASML, also declined on Wednesday. Taiwan Semiconductor Manufacturing Co fell 1.9%, Samsung Electronics (KS:005930) dropped 2.1%, and SK Hynix fell 2.5%.

Earlier this month, Samsung Electronics warned that its third-quarter profit would be below market expectations as it struggles to meet the rising demand for AI chips. In contrast, its competitor, TSMC, which counts Nvidia among its major customers, is expected to report a 40% increase in third-quarter profit on Thursday.

In a separate development, Bloomberg News reported on Monday that U.S. officials are considering capping export licenses for AI chips to certain countries, primarily in the Persian Gulf region, due to national security concerns.

Washington is increasingly worried that the Middle East could become a conduit for China to obtain advanced American chips that cannot be directly exported to the country.

"Given the pivotal role the AI revolution is expected to play in enhancing productivity and facilitating technological advancements, it's understandable that the U.S. wants to take measures to maintain its leadership position," stated Danni Hewson, head of financial analysis at AJ Bell.