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The rally in US chip shares that has seen Nvidia and AMD greater than double in worth over the previous yr is beneath stress after warnings that the bogus intelligence growth is masking a broader stoop in semiconductor demand.
The Philadelphia Stock Exchange Semiconductor Index, which tracks the 30 prime US chip corporations, has risen by greater than 50 per cent in 12 months as traders guess on continued hovering demand for the AI processors that energy OpenAI’s ChatGPT and related apps.
But solely a handful of corporations have benefited considerably from the insatiable demand for AI chips amongst Big Tech corporations and start-ups corresponding to OpenAI and Anthropic over the previous yr. Nvidia and its suppliers, together with TSMC and Supermicro, have loved disproportionate beneficial properties, whereas most different chipmakers grapple with stockpiled inventories and damp buyer demand throughout a variety of industries.
Disappointing forecasts for the primary quarter of 2024 from business bellwethers Intel and Texas Instruments this week have dented Wall Street’s confidence in a broader restoration. A dismal yr for PCs and smartphones in 2023 has run into new considerations about demand from automakers and industrial functions.
The sturdiness of the chip rally that gathered tempo within the closing months of 2023 shall be put to the take a look at subsequent week by earnings reviews from AMD, seen as the largest challenger to Nvidia’s dominance in supplying the graphics processing models wanted to coach the newest AI programs, and Qualcomm, which is betting new AI-powered smartphones will revive the cell market.
Shares in Intel fell by round 12 per cent on Friday, shedding round $25bn in market worth, after the Silicon Valley firm’s forecast for revenues within the first quarter of the yr fell wanting Wall Street’s estimates by as a lot as $2bn.
Analysts mentioned that the weaker numbers instructed Intel was shedding out to Nvidia, whose cutting-edge chips have turn into indispensable to corporations corresponding to Microsoft, OpenAI and Meta, that are investing closely in new information centres centered on AI.
Earlier this month, Meta chief Mark Zuckerberg mentioned that the social media group deliberate to amass nearly 600,000 high-end GPUs, primarily from Nvidia, by the tip of this yr — an funding working into a number of billion {dollars} because it steps up its AI analysis.
While a couple of deep-pocketed tech giants are ploughing huge sums into AI chips, semiconductor corporations that make elements for a wider vary of shoppers in additional conventional industries, together with Texas Instruments and ST Micro, have reported muted demand that fell wanting traders’ expectations.
Texas Instruments mentioned this week that first-quarter income can be round 10 per cent decrease 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, mentioned on a convention name with analysts.
Analysts famous that the $150bn chipmaker had reported elevated ranges of order cancellations over the previous a number of quarters, and Pahl mentioned on Thursday that remained the case.
Intel’s transfer triggered a sell-off throughout the semiconductor market on Friday. Qualcomm, AMD and Broadcom every fell by round 2 per cent, whereas Nvidia was 1 per cent decrease.
However, Nvidia inventory continues to be up by greater than 25 per cent in January, after nearly tripling in 2023, as executives pointed to persevering with development in 2025 even after a sequence of mammoth income upgrades over the previous 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,” mentioned 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 identical time, Goldberg added, “anyone associated with Nvidia is doing well”, from chip producer TSMC — which lately forecast income development of as much as 25 per cent this yr — to Super Micro, which makes server elements. Supermicro’s inventory is up by greater than 60 per cent thus far this month after it mentioned gross sales for the quarter ending in December can be as a lot as 33 per cent, or $900mn, higher than anticipated.
Even after Friday’s drop, Intel’s shares are up by nearly 50 per cent over the previous yr, as traders anticipated a turnaround within the PC market and that it could begin to share within the enormous AI demand that Nvidia has seen over the previous yr.
Intel chief government Pat Gelsinger tried to guarantee traders that its first-quarter challenges have been “temporary” and that enterprise 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,” mentioned Ben Bajarin, analyst at Creative Strategies. “It feels like there is a nice rebound [for the semiconductor market] coming this year.”