Navigating the Semiconductor Landscape: Insights and Strategies for Investors

Oct 15, 2024 at 11:45 PM
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Chipmakers Stumble as Earnings Season Heats Up

The focus remains firmly on corporate earnings as the third-quarter reporting season continues to unfold. While major banks have delivered positive results, the tech sector has faced some turbulence, particularly in the semiconductor industry.

Navigating the Choppy Waters of Chip Demand

Semiconductor Woes Weigh on Markets

The tech sector has been battered by losses in major chipmakers, following a disappointing forecast from semiconductor manufacturing equipment maker ASML Holding. The company's shares slid 16.3% on Tuesday, although they regained some ground in aftermarket trading. ASML's September quarter earnings still managed to beat estimates, but the company's decision to cut its annual forecast on weak demand for chips not related to artificial intelligence has sent shockwaves through the industry.Chipmakers have also been rattled by reports suggesting the U.S. government is considering limiting sales of AI-related chips to certain countries, a scenario that could herald weaker sales for the sector. Market darling NVIDIA Corporation slid 4.5%, while rivals AMD and Intel Corporation lost 5.2% and 3.3%, respectively. However, all three stocks steadied in aftermarket trade.

TSMC's Earnings: A Bellwether for the Chip Industry

The focus in the tech and chipmaking sectors will now shift to the third-quarter earnings report from Taiwan Semiconductor Manufacturing Company (TSMC), the world's biggest contract chipmaker. TSMC's results, due on Thursday, are widely considered a bellwether for the broader chipmaking industry, and investors will be closely watching for any insights into the state of chip demand and supply.The losses in chipmakers have had a significant impact on Wall Street, with the S&P 500 falling 0.8% to 5,815.26 points from a record high. The NASDAQ Composite fell nearly 1% to 18,322.05 points, while the Dow Jones Industrial Average fell 0.8% to 42,740.42 points, also falling from a record high.

Positive Earnings from Banks Overshadowed

The weak performance from ASML has largely overshadowed positive earnings reports from major banks, including Goldman Sachs Group, Citigroup, and Bank of America. Morgan Stanley is now set to round out bank earnings on Wednesday, while other notable reports are expected from Abbott Laboratories and U.S. Bancorp on the same day, and Netflix Inc on Thursday.The earnings season is set to peak next week, with a string of major technology firms, including Alphabet Inc and Tesla Inc, scheduled to report their results. Investors will be closely watching these reports for insights into the broader economic landscape and the health of the tech sector.

Shifting Expectations on Interest Rates

Beyond the earnings season, investor focus is also on addresses from a string of Federal Reserve officials, amid growing bets that interest rates will fall at a slower-than-expected pace. This shift in expectations could have significant implications for the markets and the broader economy, as investors grapple with the potential impact of higher borrowing costs.As the earnings season continues to unfold, the tech sector and the broader markets will remain in the spotlight, with investors closely monitoring the performance of key players and the broader economic trends that are shaping the investment landscape.