so what happened? On Thursday night, AMD issued a profit warning stating that revenues are expected to be 16% lower than the previous forecast, knocking the sector down but that was not the end – last Friday the US Department of Commerce’s Bureau of Industry and Security (BIS) announced a restriction on the export of some semiconductors to China. The American government fears that the Chinese government will have access to advanced chips made in America, when the Chinese want to become leaders in the field of artificial intelligence (AI) in the world by 2030, or in the language of the Department of Commerce: the bureau is “implementing a series of targeted updates to its export controls” to limit the “China’s ability to obtain advanced computer chips, develop and maintain supercomputers, and produce advanced semiconductors.”
Why does this hurt chip stocks?
Investors fear that the U.S. government’s restrictions will ultimately hurt chipmakers’ sales and revenues. Although the companies can apply for a license to sell certain chips and semiconductor manufacturing equipment to China, the market fears that the U.S. government’s latest move will hurt demand and the capacity of some of the companies sell their chips in China.
When will the investors be able to receive a signal regarding the developments on the subject?
The market is now entering quarterly reporting season. The companies are expected to start reporting soon and investors will be looking for signs in the companies’ reports and references to the subject and the impact and damage estimates they expect following the steps of the US government. Except for Micron which has already published and TSMC which will report this Thursday, the other players are expected to report at the end of the month/beginning of November.
It should be said – the American government is not really closed in on themselves at the moment. About a month ago, chip giant Nvidia announced that it expects a $400 million hit in the upcoming reports and the stock fell. Even when the company later issued a reassuring announcement that it had received permission to continue selling its chips in China, it did not help the stock erase the fall that day.
Let’s recall that while the indexes in the US lost 25-30% of their value this year, chip stocks lose 55-60% of their value. Definitely a painful blow to the sector. On the other hand, we have to remember that these stocks jumped much more last year than the indexes. What goes up more also goes down more.
Another problem in the field – the laptop market is going down after the corona virus
Chip manufacturers also depend on what happens in the laptop market. If during the time of the corona business flourished, then now the situation has reversed – the market predicts that the laptop shipping industry will fall by 17% this year, while last year the expectation was an increase of 11%. At the same time, analysts talk about the fact that there is a significant decrease in the sales of graphics processors, when computer stores sell them at a 30% discount and that on eBay you can also find processors at a 40% discount.
So yes, it is possible and likely that in the longer term the chip stocks are expected to continue to benefit from the growth in the industry and the needs in the world for more and more chips, but in the near term the analysts fear the expected damage.
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