Chip stocks slump despite strong business results, CNA reports
The Philadelphia Semiconductor Index lost about 16 per cent over eight sessions, its longest run of falls since 2008, even as TSMC reported record profit.
Chip stocks have slumped even though the businesses behind them are doing well, according to CNA. The Philadelphia Semiconductor Index lost about 16 per cent over eight sessions in a row ending Friday (Oct 16), its longest run of falls since the 2008 global financial crisis. The index, known as SOX, follows 30 of the biggest US-listed chip companies, including Nvidia and Advanced Micro Devices.
Asian chip firms also hit
Last week, the selling spread to Asia, with Samsung Electronics shedding roughly 18 per cent and SK hynix about 24 per cent, respectively. Japan's Kioxia Holdings fell nearly 24 per cent, and Taiwan's TSMC slipped about 5 per cent.
The drop came despite strong numbers. For the third quarter, TSMC posted NT$763.1 billion (US$23.5 billion) in net profit, a rise of nearly 69 per cent on the previous year that marked the sixth quarter in a row of record earnings. TSMC attributed the increase in revenue, which climbed 50.9 per cent and reached NT$1.5 trillion, to "extremely robust" demand. Spending on data centres, chips and other AI infrastructure by Microsoft, Amazon, Alphabet and Meta is projected to total roughly US$600 billion this year.
Interest rates and high valuations
According to Saxo Singapore chief investment strategist Charu Chanana, US inflation that came in hotter than expected was one trigger, as it renewed expectations that the Federal Reserve could hold rates high or tighten further. The Fed raised rates by 25 basis points last month, its first increase since 2023, and signalled more hikes in the months ahead. Chanana said higher rates also raise financing costs for companies borrowing heavily to build data centres and AI infrastructure.
Rates are only part of the picture. After years of enthusiasm, valuations have climbed sharply, while investors are growing choosier about which companies are able to convert demand into lasting profits. "There is an important difference between spending money on AI and making money from AI," Chanana said.
Investors fretted over CoreWeave's US$50 billion of debt and its financing links to chipmakers like Nvidia and to customers such as Meta Platforms and OpenAI, and its shares dropped more than 15 per cent last week.
Adoption may be slower than building
A professor at the NUS School of Computing, Anthony Tung, said that AI today is mostly used for drafting, summarising and helping programmers, whereas its role in the core operations of sectors like manufacturing and healthcare remains more limited. "That capacity is built for demand expected several years out, while adoption moves at the speed organisations can change their processes and their people," he said. "If adoption lags, there will be a correction in valuations and spending."
A correction, not a collapse, say experts
Rather than a sign that the boom is coming apart, experts have characterised the sell-off as a reappraisal of AI investments. Alfie Yeo, senior research analyst at RHB Singapore, said it is likely a correction because the market feels overvalued based on current development and returns in AI.
Chanana said a deeper downturn would be signalled by big tech firms making material cuts to AI spending, by weaker chip orders, or by funding troubles that force delays or cancellations of data-centre projects. "The biggest risk is not necessarily that AI fails. It is that AI succeeds, but investors have paid too much for the profits it eventually generates," she said.
The Monetary Authority of Singapore said last week it expects AI-related activity to keep supporting its expansion next year, though at a slower pace. Whether AI demand is still strong, and whether rivalry and growing capacity are eating into profit margins, could become clearer from the coming earnings and outlooks of Nvidia, Samsung Electronics and SK hynix.
