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The rally in US chip stocks that has seen Nvidia and AMD more than double in value over the past year is under pressure after warnings that the artificial intelligence boom is masking a broader slump in semiconductor demand.
The Philadelphia Stock Exchange Semiconductor Index, which tracks the 30 top US chip companies, has risen by more than 50 per cent in 12 months as investors bet on continued soaring demand for the AI processors that power OpenAI’s ChatGPT and similar apps.
But only a handful of companies have benefited significantly from the insatiable demand for AI chips among Big Tech companies and start-ups such as OpenAI and Anthropic over the past year. Nvidia and its suppliers, including TSMC and Supermicro, have enjoyed disproportionate gains, while most other chipmakers grapple with stockpiled inventories and damp customer demand across a range of industries.
Disappointing forecasts for the first quarter of 2024 from industry bellwethers Intel and Texas Instruments this week have dented Wall Street’s confidence in a broader recovery. A dismal year for PCs and smartphones in 2023 has run into new concerns about demand from automakers and industrial applications.
The durability of the chip rally that gathered pace in the final months of 2023 will be put to the test next week by earnings reports from AMD, seen as the biggest challenger to Nvidia’s dominance in supplying the graphics processing units needed to train the latest AI systems, and Qualcomm, which is betting new AI-powered smartphones will revive the mobile market.
Shares in Intel fell by around 12 per cent on Friday, shedding around $25bn in market value, after the Silicon Valley company’s forecast for revenues in the first quarter of the year fell short of Wall Street’s estimates by as much as $2bn.
Analysts said that the weaker numbers suggested Intel was losing out to Nvidia, whose cutting-edge chips have become indispensable to companies such as Microsoft, OpenAI and Meta, which are investing heavily in new data centres focused on AI.
Earlier this month, Meta chief Mark Zuckerberg said that the social media group planned to amass almost 600,000 high-end GPUs, mainly from Nvidia, by the end of this year — an investment running into several billion dollars as it steps up its AI research.
While a few deep-pocketed tech giants are ploughing vast sums into AI chips, semiconductor companies that make components for a wider range of customers in more traditional industries, including Texas Instruments and ST Micro, have reported muted demand that fell short of investors’ expectations.
Texas Instruments said this week that first-quarter revenue would be around 10 per cent lower than Wall Street forecasts. “We believe that we’ll just continue to operate in a weak environment and one where customers are continuing to rebalance their inventories overall,” Dave Pahl, TI’s head of investor relations, said on a conference call with analysts.
Analysts noted that the $150bn chipmaker had reported elevated levels of order cancellations over the past several quarters, and Pahl said on Thursday that remained the case.
Intel’s move triggered a sell-off across the semiconductor market on Friday. Qualcomm, AMD and Broadcom each fell by around 2 per cent, while Nvidia was 1 per cent lower.
However, Nvidia stock is still up by more than 25 per cent in January, after almost tripling in 2023, as executives pointed to continuing growth in 2025 even after a series of mammoth revenue upgrades over the past few quarters.
“From a nuts and bolts level, AI is just a transition from Intel being the king of the data centre to Nvidia being king of the data centre,” said Jonathan Goldberg of D2D Advisory, a tech consultancy. “Intel has lost that crown and we are still figuring out just how bad that’s going to be.”
At the same time, Goldberg added, “anyone associated with Nvidia is doing well”, from chip manufacturer TSMC — which recently forecast revenue growth of up to 25 per cent this year — to Super Micro, which makes server components. Supermicro’s stock is up by more than 60 per cent so far this month after it said sales for the quarter ending in December would be as much as 33 per cent, or $900mn, better than expected.
Even after Friday’s drop, Intel’s shares are up by almost 50 per cent over the past year, as investors anticipated a turnaround in the PC market and that it would start to share in the huge AI demand that Nvidia has seen over the past year.
Intel chief executive Pat Gelsinger tried to assure investors that its first-quarter challenges were “temporary” and that business momentum “will grow stronger as the year progresses”, promising “meaningful revenue acceleration” in its Gaudi AI chips, which rival Nvidia’s.
“This is not a systemic industry problem but it hurt a lot of people’s confidence,” said Ben Bajarin, analyst at Creative Strategies. “It feels like there is a nice rebound [for the semiconductor market] coming this year.”
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