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Why semiconductor stocks fell today

As the trading week came to a close, investors were feeling quite down about the semiconductor industry. Many stocks in the sector praised the big promise that artificial intelligence (AI) would boost their results. However, there are some sour comments in recent earnings reports from major chippies – especially in sector king guidance Taiwanese semiconductor manufacturing (NYSE: TSM) — led to a fairly broad sell-off on Friday.

Taiwan Semi, which fell more than 3%, had plenty of company. Specialist in storage chips Micron technology (NASDAQ:MU) ended the day almost 5% lower, and analog chipmaker Texas Instruments (NASDAQ: TXN) down by more than 2%.

Uncomfortable news from Taiwan

What’s happening with Taiwan Semi reverberates across the chip sector, as the contract manufacturer is now the industry’s 800-pound gorilla.

On Friday, investors were still processing the Asian company’s first-quarter earnings results published on Thursday. While revenues rose by double digits and total net profit came in almost 9% higher – both above analysts’ consensus expectations – the company’s expectations were somewhat concerning.

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Management pointed out that there is weakness in the previously strong global smartphone market, a dynamic that threatens to weaken the industry’s future growth. Yes, AI will certainly be the rising tide that lifts all boats, but the gains are limited if smartphones put a heavy burden on these watercraft.

Another not so positive development occurred Super microcomputer, a semiconductor industry supplier widely expected to be a major beneficiary of the AI ​​revolution. The company has apparently opted not to announce its latest quarterly results in advance, which has become a company habit of late. Market players speculate that this is because the numbers will not look so good.

Given the sluggish growth of many chip companies and the feverish adoption of AI, more than a few analysts expect improvements to Supermicro’s fundamentals when it reports these fiscal second-quarter results.

Smartphones – no shocker

The world is still in the grip of AI fever, so ultimately the technology will keep the growth engine running for the better semiconductor companies that power it.

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While smartphones remain popular products for much of the world, it is not surprising that they are no longer a source of strong growth. Improvements to their features these days are often incremental and users hold on to models longer before upgrading. It’s not that this segment is in freefall, or that this is a shocking development. This is likely one reason why semiconductor stocks’ decline wasn’t more dramatic on Friday.

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Eric Volkman has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Taiwan Semiconductor Manufacturing and Texas Instruments. The Motley Fool has a disclosure policy.

Why Semiconductor Stocks Got Slammed Today was originally published by The Motley Fool

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