U.S. Chip Stocks Downturn: Wall Street Reacts to Semiconductor Declines
Wednesday marked a continuation of losses for U.S. chip stocks, pulling down the main semiconductor benchmark on Wall Street. This downward trend comes after the sector’s robust performance in 2023, marking its most formidable since the rebound from the 2009 financial crisis.
Market Reaction to Semiconductor Index Decline
The PHLX semiconductor index experienced a notable 2.1% decline, primarily driven by substantial drops in key players like Advanced Micro Devices (AMD.O), Qualcomm (QCOM.O), and Broadcom (AVGO.O). Since hitting its record high close on December 27, the chip index has retreated by almost 7%.
The recent dip in semiconductor stocks aligns with a broader market decline as investors eagerly await insights from the Federal Reserve’s December meeting minutes, scheduled for release later on Wednesday. These minutes are anticipated to provide clues about the future trajectory of interest rates.
In 2023, the PHLX demonstrated an impressive 65% surge, fueled by optimism surrounding artificial intelligence and the prevailing expectation of interest rate cuts by the Federal Reserve. This performance outpaced the annual gains of 43% and 24% for the Nasdaq (.IXIC) and S&P 500 (.SPX), respectively.
Chip stocks have also reaped the benefits of a prevailing belief that the global demand downturn experienced by memory chip manufacturers in the previous year, leading to production cuts, has largely bottomed out.
Nvidia’s Market Value Tripling
Nvidia (NVDA.O), recognized as a leading provider of AI-related chips, saw its stock market value triple in 2023 to $1.2 trillion, securing its position as Wall Street’s fifth most valuable company. Despite a minor dip of almost 1% on Wednesday, the company remains a focal point for investors.
In a recent communication to clients, BofA Global Research analyst Vivek Arya advised strategic exposure to the cloud computing and automotive sectors through stocks such as Nvidia, Marvell Technology (MRVL.O), NXP Semiconductors (NXPI.O), and ON Semiconductor (ON.O). Arya also suggested considering stocks like KLA Corp (KLAC.O) and Arm Holdings (O9Ty.F) for exposure to the increasing complexity of chip designs.
In another analysis, Wells Fargo analyst Joe Quatrochi predicted a modest recovery for chip equipment sellers in 2024. He singled out KLA and Applied Materials (AMAT.O) as top picks within this industry.
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