The chip sector is experiencing a downturn on Wednesday, with shares of major players like Nvidia, Broadcom, Taiwan Semiconductor Manufacturing (TSMC), Marvell, ON Semiconductor, and Micron trading lower. This downward trend is driven by a wave of disappointment following Advanced Micro Devices (AMD)’s latest quarterly earnings report, which failed to impress investors.
Despite AMD reporting a 18% increase in revenue for the third quarter, reaching $6.8 billion, and exceeding analyst expectations, the company’s stock has continued its downward trajectory since Tuesday. While the reported earnings per share of 92 cents matched analyst estimates, investors were likely hoping for more robust growth, particularly in the wake of the booming artificial intelligence (AI) market.
AMD’s data center revenue saw a significant 122% jump, and revenue from its client segment climbed 29%. However, the company experienced a notable decline in gaming revenue (69%) and a 25% year-over-year drop in embedded revenue to $927 million. For the fourth quarter, AMD anticipates revenue in the range of $7.2 billion to $7.8 billion, falling short of the analyst consensus of $7.54 billion.
While the chip sector has undoubtedly benefitted from the AI frenzy, the broader landscape is not without its challenges. Geopolitical tensions between the U.S. and China, coupled with concerns about the sustainability of capital-intensive AI technology, have kept analysts cautious. Moreover, the sector is witnessing a shift in dynamics, with tech giants actively pursuing partnerships to reduce their dependence on Nvidia.
Amazon and Databricks, for instance, recently signed a five-year deal aimed at delivering affordable AI-building services using Amazon’s Trainium chips. OpenAI, the developer behind ChatGPT, has also diversified its chip suppliers, adding AMD to its roster alongside Nvidia. OpenAI has further collaborated with Broadcom and Taiwan Semiconductor to develop its own in-house chips.
Nvidia, despite facing these challenges, briefly held the title of the world’s most valuable company last week. Its market cap surged to $3.53 trillion, momentarily surpassing Apple’s $3.52 trillion, propelled by the unprecedented demand for its AI supercomputing chips.
According to Russ Mould, investment director at AJ Bell, the demand for Nvidia’s chips remains strong as companies increasingly integrate AI into their daily operations. However, the market remains cautious, and the future of the chip sector in the face of evolving AI trends and geopolitical complexities remains to be seen.
