In a significant turn of events, the global semiconductor sector, led by Nvidia (NVDA, Financial), has entered a phase of correction, with a notable decline exceeding 10% from their peak levels in March. This shift indicates a cooling period for what has been a dominant force in the equity markets for the last eighteen months.
The Philadelphia Semiconductor Index, alongside Nvidia (NVDA, Financial), experienced a drop of over 3% in a single day, signaling a broader market recalibration. This downward trend reflects growing concerns over the sustainability of their previous rallies, influenced by delayed interest rate cuts by the Federal Reserve and economic challenges in China.
ASML Holding NV (ASML, Financial), a key player in the chipmaking equipment industry, was at the forefront of the decline within the semiconductor index after reporting weaker-than-expected order volumes for the quarter. The hesitation among top clients, attributed to an excess of inventory, contrasts with sustained purchases of less advanced machinery by Chinese firms, navigating around U.S. high-tech equipment restrictions.
The forthcoming earnings announcement from Taiwan Semiconductor Manufacturing Co. (TSM, Financial), the leading global foundry, is highly anticipated. It is expected to provide further insights into demand projections, following a period of unexpectedly high sales figures.
Despite the current downturn, some optimism remains within the sector, particularly around the potential for a rebound post-TSMC's earnings report, expected to be robust. However, concerns linger regarding the expenditure on mature technology nodes amidst the rapid expansion of manufacturing capacity in China.
Notably, TSMC's American depositary receipts have seen a 6.8% decrease from their March peak. The significant contributors to the correction phase in the SOX index include Advanced Micro Devices Inc. (AMD, Financial) and Intel Corp. (INTC, Financial), both of which have seen their values diminish by over 20% since the early March highs.
