Chip Stocks Take a Hit Amid Uncertainty in Semiconductor Demand
The semiconductor industry took a blow on Thursday as chip stocks plummeted across the board. The downturn was triggered by comments from SK Hynix, a South Korean-based supplier of memory chips used in Nvidia’s graphics processing units (GPUs). These GPUs are essential for powering artificial intelligence software in data centers.
A Cloudy Outlook for 2025
During a post-earnings call, SK Hynix’s head of finance, Woo-Hyun Kim, expressed uncertainty about memory demand in 2025. He cited inventory adjustments from PC and smartphone manufacturers, as well as strengthened protective trade policies and geopolitical risks, as contributing factors to this uncertainty. This cautionary tone sent Nvidia’s stock tumbling by as much as 2%.
Ripple Effect Across the Industry
The impact was felt across the industry, with British chip designer Arm dropping nearly 6%, and SK Hynix rival Micron falling nearly 4%. Meanwhile, Nvidia rival Advanced Micro Devices and Broadcom both fell around 1%. This decline comes on the heels of a rally the previous day, sparked by news of a massive AI infrastructure project called Stargate.
Diverging Markets
Kim’s commentary highlighted the growing divide between the market for semiconductors used in consumer products and those used in data centers for artificial intelligence. As Needham analysts noted, 2024 saw a sharp divergence in the fortunes of semiconductor companies exposed to different end markets. While suppliers exposed to the PC, smartphone, industrial, and automotive sectors faced pressure due to weak demand and excess inventory, the AI segment experienced strong demand driven by accelerating deployments of AI infrastructure.
A Shift in the Memory Industry
SK Hynix’s Kim also observed that the memory industry is transitioning from a commodity market driven by volume and price to a customized market focused on high-performance and high-quality products. He emphasized that demand for memory chips used in AI data centers is expected to continue, driven by Big Tech companies’ ongoing investments in advanced AI training and inference capabilities.
A Warning Sign
However, Needham analysts cautioned that the divergence in non-AI and AI chip stocks may narrow as growth in AI revenue begins to decelerate in 2025. Big Tech companies, including Google and Microsoft, have indicated that their massive AI spending will slow down in the coming year. This warning sign has significant implications for the semiconductor industry, which is grappling with the challenges of a rapidly shifting landscape.
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