US technology and semiconductor chipmaking stocks fell from their all-time high levels after concerns over tougher restrictions on global chip sales to China spurred a stock rout on Wednesday, July 17. The tech-heavy Nasdaq slumped nearly two per cent to hit a two-week low, accompanied by losses on the S&P 500, as major chip and tech stocks were pressured by the prospect of sanctions on companies giving China access to advanced semiconductor technology.
The $24 billion VanEck Semiconductor exchange-traded fund lost four per cent. Artificial intelligence (AI)-chipmaking giant Nvidia Corp. dropped 4.3 per cent while Advanced Micro Devices Inc. and Broadcom Inc. also tumbled. ASML-US listed ‘ASML Holding NV’ sank 9l.2 per cent, even after the Dutch company reported strong orders in the second quarter of 2024.
US-listed shares of Taiwan Semiconductor Manufacturing shed 6.4 per cent after Republican presidential candidate Donald Trump said Taiwan should pay the US for its defense. Marvell Technology, Broadcom, Qualcomm , Micron Technology, Advanced Micro Devices and Arm Holdings also fell over five per cent each.
All the so-called “Magnificent Seven” megacap stocks slumped, with Apple, Microsoft Meta Platforms and Tesla down between 1.2 per cent and 2.7 per cent. The S&P 500 tech index led sectoral losses with a 2.7 per cent decline, while energy was the top gainer and was up 1.3 per cent.
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The small-cap Russell 2000 index also lost 0.2 per cent after rallying nearly 12 per cemt over the last five sessions. Wall Street’s fear gauge briefly hit its highest mark in six weeks. The blue-chip Dow, however, held some ground, with Johnson & Johnson rising 2.7 per cent after a second-quarter results beat and Intel bucking the chips rout to gain three per cent.
Global markets are highly sensitive to semiconductor supply chain disruptions. The tech underperformance is coming after a first half that saw mega caps like Nvidia, Microsoft Corp., and Alphabet Inc. propel the market higher, stretching valuations for these names and leaving them with a tougher setup for the rest of 2024.
Citigroup Inc. analysts recently suggested investors take profits in some high-flying AI stocks and “re-balance toward a broader array of AI stocks across the value chain.”. After a blistering rally in tech companies since the last leg of 2023, investors have begun moving out of expensive megacaps and into underperforming market sectors.
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‘’Investors are wary of the potential long-term impacts on corporate earnings, particularly in tech-heavy sectors like consumer electronics, automotive, and industrial automation,” said Nigel Green, CEO of independent financial advisory firm deVere Group.
Tech companies, which heavily rely on semiconductors, could see their profit margins squeezed by rising input costs. This, says Green, “could lead to lower stock prices and heightened market volatility. Investors will likely seek refuge in safer assets such as bonds and gold, further amplifying market fluctuations.”
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In the face of these uncertainties, investors must adopt proactive strategies to mitigate risks. Diversification remains a key principle. By spreading investments across various asset classes and geographies, investors can reduce their exposure to sector-specific risks.
Focusing on companies with strong balance sheets and robust supply chain management capabilities can provide some insulation against market turbulence. “The importance of semiconductors to global markets and the wider economy cannot be understated. Investors need to be proactive sooner rather than later,” concluded Green.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
