The months follow one another and look alike for the manufacturers of semiconductors.
There is an ongoing cycle of bad news for these companies whose chips power almost all the technological hardware that we use in our daily lives whether they are phones, laptops, PCs, video games, televisions, electronic devices, cars, etc.
Companies also need their microprocessors and graphic cards in their day-to-day operations, whether for their data center or cloud.
For months, fears of a hard landing in the economy due to aggressive interest rate hikes by the Federal Reserve to fight inflation at its highest in 40 years have been a headache since the beginning of the year for Nvidia (NVDA), Advanced Micro Devices (AMD), Intel (INTC), Micron (MU) and Qualcomm (QCOM).
Stocks Sharply Down
The stock market performance of these firms since the beginning of September has thus been unsurprisingly disastrous. Nvidia shares have lost more than 13% since the end of August, while AMD shares, which had rebounded well after the release of the second quarter earnings, have fallen by 9.2% since the end of August. Intel shares lost 8.2% of their value over the same period, Micron shares fell 5.1% and Qualcomm shares fell 5.5%.
Investors' fears are as follows: if the Fed continues to raise its rates so quickly and so significantly, it will cause a recession. And if there is a recession, households and businesses will drastically reduce their spending. These arbitrations will mainly affect purchases of technological products and services. An example: a consumer who was used to changing phones regularly will probably postpone the next purchase to save money in the event of a hard blow in view of economic uncertainties.
And the latest inflation data showing that it is not abating gives investors confidence that the central bank may even raise interest rates even more sharply at its two-day monetary meeting on Sept. 20-21.
Core U.S. consumer prices jumped 0.6% last month, powered not only by rising rents but also by accelerating pressures across a broad range of the products and services. The figures suggested that pressures have yet to peak in the world's biggest economy, data from the Bureau of Labor Statistics indicated.
"Today’s CPI report confirms that the US has a serious inflation problem," commented former Treasury Secretary Larry Summers on Twitter. He's one observer who says the Fed must go even faster in its monetary tightening.
Nvidia Has Many Problems
The semiconductor sector is also hampered by the continuation of the trade showdown between the United States and China. The Biden administration is expected to officially enforce an export ban on advanced AI accelerators to China by AMD, Nvidia and others, Reuters reported on Sept. 11. The ban, announced late last month, restricted the export of Nvidia’s A100 and H100 AI accelerators as well as AMD’s MI250X GPUs. Nvidia has warned this restriction could hurt its sales by $400 million next quarter.
The sector should also see its revenue generated by semiconductors sold to the crypto industry decrease in the coming months because Ethereum, the No. 2 platform after Bitcoin, will change its transaction validation system from Sept. 15. The new transaction validation mode requires fewer computers, and therefore fewer graphics cards and less advanced semiconductors.
This last point concerns more specifically Nvidia, whose sales of chips for the gaming industry are already very impacted by the lockdowns in China to combat covid-19.
World Semiconductor Trade Statistics, a non-profit body that tracks shipments, has revised its sales estimates for 2022 to 13.9% growth from a previous 16.3%. Global chip sales for 2022 are now expected at $633 billion.
In 2023, sales will only increase by 4.6%
But industry sources believe that the current downturn is temporary because AI and robotics will play an essential role in the economy in the years ahead.
