Why semiconductor stocks plummeted today

As the trading week concluded, investors were feeling somewhat optimistic about the semiconductor industry. Many stocks in this sector have seen strong gains on high expectations that artificial intelligence (AI) will improve performance. But the latest earnings report from a major “chippy” had some sour notes. This is especially true in the guidance published by Sector King. Taiwan semiconductor manufacturing industry (TSM -3.45%) – There was a fairly widespread sell-off on Friday.

There were many companies in the Taiwan Semi that fell over 3%. storage chip expert micron technology (M.U. -4.61%) The analog chip maker ended the day down nearly 5%. texas instruments (TXN -2.44%) It fell by more than 2%.

Uncomfortable news from Taiwan

What happens at Taiwan Semi is reverberating throughout the chip sector, as contract manufacturers are the 800-pound gorillas of the industry these days.

On Friday, investors were still digesting Asian companies’ first-quarter earnings reports released on Thursday. Although sales grew by double-digit percentages and headline net income rose nearly 9%, both of which topped analysts’ consensus estimates, the company’s guidance was somewhat worrisome.

Management noted that there are weaknesses in the previously strong global smartphone market, which risk undermining the industry’s future growth. That’s right. AI is certain to be the rising tide that lifts all boats, but if smartphones weigh down the ship, its upside potential is limited.

Another not-so-positive development has occurred. super micro computer, a semiconductor industry supplier widely expected to be a major beneficiary of the AI ​​revolution. The company appears to have decided not to pre-announce its quarterly earnings announcements, which has been a habit of late. Market participants are speculating that this is because the numbers don’t look very hot.

Given the lagging growth of many chip companies and the frenzied adoption of AI, more than a few analysts expect Supermicro’s fundamentals to improve when it reports fiscal second-quarter results.

Smartphones – not shocking

As the world is still caught up in the AI ​​craze, the technology will ultimately power AI by continuing to fuel the growth engines for better semiconductor companies.

And while smartphones are still the preferred item for most people around the world, it is no surprise that they are no longer a hot source of growth. These days, feature improvements tend to be incremental, and users are spending more time with a model before upgrading. It’s not like the part is in any kind of free fall, nor is this a shocking development. This may be one reason why the decline in semiconductor stocks on Friday wasn’t that sharp.