The AI chip sector took a hit on Tuesday after Dutch chip-equipment maker ASML Holdings N.V. (ASML) reported weaker-than-expected bookings for the third quarter and lowered its guidance. The news sent shares of companies with exposure to artificial intelligence tumbling, raising questions about the future of this rapidly growing market.
Some analysts believe the market’s reaction was an overreaction, arguing that ASML’s guidance cut wasn’t necessarily a reflection of waning AI demand. Deepwater Asset Management’s Gene Munster pointed out that only about 10% of ASML’s revenue is attributed to AI demand, and the company clarified that the weakness was not related to AI, but rather to other areas like logic, memory, and demand from China.
However, others remain cautious, highlighting the inherent risks associated with investing in AI chip companies. While AI technology has garnered immense hype since OpenAI’s ChatGPT gained prominence, and chipmaker Nvidia Corp. (NVDA) has emerged as a frontrunner in this revolution, some analysts worry about stretched valuations of AI stocks due to the significant investments companies are forced to make upfront before reaping the rewards.
Despite the short-term volatility, the long-term outlook for the AI chip market remains positive. Wedbush’s Daniel Ives expects a surge in enterprise spending as AI use cases become more prevalent. He estimates a staggering $1 trillion in AI capital expenditure (CapEx) over the next three years, indicating a robust growth trajectory for the industry.
The recent market reaction to ASML’s news serves as a reminder of the inherent risk associated with investing in emerging technologies. While the potential of AI is undeniable, investors need to navigate the market carefully, keeping a close eye on valuations and company fundamentals.
It’s worth noting that the Global X Artificial Intelligence & Technology ETF (AIQ) fell 1.76% on Tuesday, reflecting the broader market sentiment. However, the long-term potential of AI remains intact, and the industry is expected to continue its rapid growth in the coming years.