Global chip stocks have taken a hit recently, with the Philadelphia Semiconductor Index and Nvidia experiencing a significant downturn of over 3% each, resulting in a technical correction as they plummet more than 10% from their peak levels in March. The decline in these stocks is reflective of concerns surrounding the sector, including fears of excessively high valuations, postponed Federal Reserve interest rate reductions, and the economic challenges faced by China. Moreover, Dutch chipmaking equipment company ASML Holding NV played a pivotal role in Wednesday's market decline within the semiconductor industry, reporting disappointing orders for the last quarter.
The cautious sentiment towards chip stocks has been further exacerbated by the news that top customers are holding back on purchases as they try to deplete existing stockpiles, while China continues to acquire less-advanced machinery due to US restrictions on high-tech equipment. Meanwhile, Taiwan Semiconductor Manufacturing Co. (TSMC) has offered a glimmer of hope for the industry as it announced its first profit surge in a year, driven by robust demand for artificial intelligence-related products. TSMC, a key producer of chips for Nvidia and Apple, revealed a 9% rise in net income for the first quarter, surpassing market expectations.
Despite these positive results, concerns remain regarding TSMC's business in China, which is predicted to decline significantly as Chinese companies strive to enhance their domestic capacity for chip production. Additionally, foundries that do not focus on cutting-edge chip technology may face challenges due to rising energy costs. The decline in TSMC's American depositary receipts from their March peak, along with substantial drops in Advanced Micro Devices Inc. and Intel Corp. shares, underscores the broader downturn in the semiconductor sector and its implications on global markets.