The Great Divide in the Semiconductor Industry
A growing chasm is emerging in the $530 billion semiconductor industry, separating companies that are riding the artificial intelligence (AI) wave from those that are not. This divide is expected to widen, with far-reaching consequences for the industry.
Chip Creators Feel the Pinch
Semiconductor equipment makers, such as ASML Holding NV, are on the front lines of the industry, providing the machines used to manufacture chips. However, they are flashing a caution signal, warning of a demand slump in key businesses like personal computers and automobiles. Intel Corp., Samsung Electronics Co., and Texas Instruments Inc. are among the companies feeling the pinch, with falling sales and mounting losses.
AI Spending Bump
On the other hand, semiconductor companies that will benefit from Big Tech’s continued heavy spending on AI development are seeing a surge in demand. Microsoft Corp., Alphabet Inc., and Meta Platforms Inc. are pumping billions into capital expenditures, with much of that going to computing component makers. Nvidia Corp. is a chief beneficiary, with its chips dominating the market for AI accelerators.
Winners and Losers
The Philadelphia Stock Exchange Semiconductor Index (SOX) tumbled last week, losing 5.3% on Tuesday alone, before paring its losses following Taiwan Semiconductor Manufacturing Co.’s (TSMC) results on Thursday. Semiconductor equipment makers like ASML and Lam Research Corp. were among the leading decliners, while several chipmakers, including Marvell Technology Inc., managed to rise.
Analysts Weigh In
“We should expect this kind of divergence to continue, since it is completely correct to assume it is all AI,” said Gabelli Funds research analyst Ryuta Makino. “We continue to see a strong growth outlook for AI semis, and are closely watching managements’ guidance on future demand in the days and weeks ahead,” added Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.
Looking Ahead
As the industry continues to navigate this great divide, investors will be monitoring earnings reports from companies like Texas Instruments Inc. and Lam Research Corp. Nvidia’s dominance in the AI accelerator market is expected to continue, with its new Blackwell chip seeing strong demand from customers. Other companies that should benefit from the rising tide of AI spending include TSMC, Broadcom Inc., Arm Holdings Plc, Micron Technology Inc., and Advanced Micro Devices Inc.
A Question of Timing
While some analysts believe that non-AI chipmakers will eventually see a resurgence in demand, the timing is uncertain. For now, AI remains the focus, with companies that are well-positioned to benefit from this trend likely to continue to outperform.
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