Shares of NVIDIA, Intel and other U.S. chip makers joined the downtrend on Jan. 3 as Wall Street’s main semiconductor index retreated from record highs following its biggest gain since 2009 as the semiconductor industry recovered from the financial crisis. Reuters was among the first to notice the change in trend.
Thus, the drop in shares of AMD, Qualcomm and Broadcom by more than 2% hit the semiconductor index PHLX (SOX) the most. of the general condition of this industry in the financial markets”]which decreased by 2.1%. The PHLX is down nearly 7% from a record high on Dec. 27.
This week’s slide in semiconductor stocks is part of a broader decline on Wall Street amid investor expectations of a rate hike by the US Federal Reserve at the regulator’s December meeting. By the way, the protocol has already been published — the regulator kept the interest rate at the level of 5.25–5.5% per annum and hinted (currently without specifics) at a further decrease in the interest rate during 2024 (observers expect 3.75–4%).
Fueled by AI hype and more recently expectations that the Fed will cut interest rates this year, the PHLX semiconductor index is up 65% through 2023, its highest performance since 2009. By comparison, the well-known NASDAQ and S&P 500 stock indexes added 43% and 24%, respectively, during this time.
Shares of chipmakers also benefited significantly from bets on a slowdown in global demand last year. After manufacturers of memory chips cut production, the market practically bottomed out. And the biggest benefit in the new AI races was obtained by NVIDIA, which is the largest producer of graphics accelerators that ensure the operation of generative neural networks and chatbots. The green chip maker’s capitalization has more than tripled to $1.2 trillion by 2023, making it the fifth most valuable company on Wall Street. Since the beginning of 2024, NVIDIA has lost 3.94% of its value.
The world economy must avoid a recession in 2024 (GDP growth and a slowdown in inflation in the US and the Eurozone are the arguments for this). On the other hand, there are many uncertainties and a downward revision of consumption figures argues for a depletion of reserves and a high probability of a recession in the future. After all, no one can predict how events will develop (what awaits the US and European economies), so it remains to assume the probability of various events taking into account the current circumstances.
BofA Global Research analyst Vic Arya advised his clients to invest in cloud computing and cars through shares of Nvidia, Marvell Technology, NXP Semiconductors and ON Semiconductor. He also added shares of KLA Corp and Arm Holdings to his list of recommendations, given the increasing complexity of chip designs. In another note, Wells Fargo analyst Joe Quattrocchi noted expectations for a modest recovery in chipmakers in 2024, and pointed to KLA and Applied Materials as the most promising stocks in the segment.
