(Bloomberg) — A gauge for global chip stocks and AI indicator Nvidia Corp. have collectively entered a technical correction, showing that the most notable driver of the global stock market has been subdued over the past year and a half.
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The Philadelphia Semiconductor Index and Nvidia fell more than 3% each Wednesday, dropping more than 10% from record levels reached in March.
In addition to concerns about rallies overheating, the sector is also hit by concerns about delayed interest rate cuts by the Federal Reserve and the weak Chinese economy.
Dutch chip production equipment company ASML Holding NV led the decline in the so-called SOX gauge on Wednesday after placing disappointing orders for the last quarter. Top customers are holding off as they work through their inventories, though China’s purchases of less advanced machines have held up amid U.S. restrictions on access to high-tech equipment.
Taiwan Semiconductor Manufacturing Co. could help boost sentiment after it reported its first profit increase in a year on Thursday, helped by strong demand for AI. The main outsourced chip manufacturer for both Nvidia and Apple Inc. reported a 9% increase in net profit to NT$225.5 billion ($7 billion) for the first three months of the year, beating the consensus estimate.
Read more: TSMC posts first profit growth in a year after global AI boom
TSMC’s results were “not too bad,” said Amir Anvarzadeh, a Singapore-based strategist at Assymetric Advisors. Still, the company’s Chinese operations “will most likely drop to near zero, given the domestic factory capacity the Chinese are building,” Anvarzadeh said. Foundries that don’t deal with the most advanced chips could be hurt by higher energy costs, he added.
TSMC’s U.S. depository receipts are down 6.8% from their all-time high in March. The biggest drags on SOX on the decline to correction are Advanced Micro Devices Inc. and Intel Corp., each of which is down more than 20% since its March 7 peak.
–With help from Charlotte Yang and Youkyung Lee.
(Updates with details of TSMC’s earnings report and new asymmetric note)
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