The News
Tech stocks appeared to stabilize Wednesday after dipping Tuesday, following the release of a disappointing third-quarter earnings report from Dutch semiconductor equipment maker ASML.
The report, which was accidentally published Tuesday — a day earlier than scheduled — showed slower-than-expected net bookings, a figure which measures orders placed by the company’s customers, and revised financial guidance for 2025: The company lowered its net sales forecast for 2025 from €40 billion to somewhere between €30 and 35 billion.
ASML’s stock was still down about 5% in European morning trading Wednesday after plunging 15% the day before — its sharpest drop since 1998 — but the S&P, Dow Jones, and Nasdaq remained largely flat.
ASML’s CEO warned Tuesday that the slowdown was largely caused by a slow recovery in some parts of the semiconductor market, pushing investors to reconsider the prospects of the chips industry.
SIGNALS
Future of AI chips industry under scrutiny
ASML’s revised forecast signals factory overcapacity at semiconductor companies, rather than a slowdown in global chip demand, analysts told Reuters. Chip factories overstocked on ASML’s tools during the pandemic, and have learned to utilize them better to produce a higher volume of chips. ASML’s results also illustrate the divergent fates of chip companies, according to Bloomberg: Surging demand for AI-related chips is “masking sluggish demand in the rest of the sector,” and the trend will likely last until 2025, an analyst said. Investors will now be closely watching Thursday’s third-quarter earnings reports from Taiwan’s TSMC — ASML’s client and the world’s biggest chipmaker — for indicators of the industry’s health.
Nvidia expected to outperform other big tech companies — again
The robust demand for AI chips means Nvidia, the leader in the sector, “will dominate Big Tech’s earnings season again,” The Wall Street Journal wrote. As Microsoft, Meta, Google, and Amazon spend billions a year in the race to build generative AI, an “outsized amount” of that goes to Nvidia, widely seen as “the company selling the picks and shovels for the AI gold rush,” CNBC reported: The US chip giant controls more than 80% of the AI chip market. But even as Wall Street is bullish on AI’s potential to boost Big Tech’s fortunes, some analysts warn that Nvidia’s biggest customers may not see a major return on their AI investments anytime soon.
US may be worried about Gulf’s growing AI influence
The Biden administration is weighing whether to curb AI chip exports to some Middle Eastern countries over national security concerns, suggesting that the US is worried about “the Persian Gulf’s global influence over the AI industry,” TechCrunch wrote. The US has already restricted AI chip exports to more than 40 countries in an effort to prevent chips from being redirected to China as the two rivals race to dominate the technology, Bloomberg noted, but chipmakers have succeeded in sidestepping regulations. Wealthy Gulf countries like UAE and Saudi Arabia have a growing appetite for AI data centers, and chip giants Nvidia and Samsung have reportedly discussed building new factories in the UAE to satisfy the global demand for AI chips.