Why Semiconductor Stocks Got Clobbered Today
What happened
Semiconductor stocks were getting blasted today. The Nasdaq Composite was down 2.2% as of the market close on Wednesday, but top names in the chip space were down even more.
|
Company |
Market Cap/Fund Size |
Daily Return (Loss) |
|---|---|---|
|
NVIDIA (NASDAQ: NVDA) |
$613 billion |
(6%) |
|
Qualcomm (NASDAQ: QCOM) |
$157 billion |
(4.3%) |
|
AMD (NASDAQ: AMD) |
$169 billion |
(3.1%) |
|
iShares PHLX Semiconductor Fund (NASDAQ: SOXX) |
$8.5 billion |
(2.5%) |
Data source: YCharts and iShares.
Interestingly, some of the largest businesses in the semiconductor industry were down way more than the average on the day. Not incidentally, this is likely because these names (NVIDIA, Qualcomm, and AMD) have some of the highest growth potential in the coming years.
Image source: Getty Images.
So what
But why would high-growth businesses get clobbered by the market? It all has to do with the expected pace of rising interest rates. Minutes from the Federal Reserve's March 15 and 16 meeting were out today, and comments indicated the Fed might be willing to get aggressive in its fight against inflation. What that means is a faster climb in its benchmark interest rate and a slimming down of its $9 trillion balance sheet.
As a reminder, higher rates lower the present value of risk assets like stocks, especially those of fast-growing businesses.
Now what
As ugly as it's been for semiconductor stocks like NVIDIA, Qualcomm, and AMD this year, it's important to keep in mind that owning these businesses is a long-haul endeavor. That in itself is creating another rub: Some market analysts are beginning to predict a possible slowdown in chip growth in 2023, perhaps coming from lower consumer-electronics demand after a pandemic boom in household spending.
Nevertheless, the potential for these companies over the next decade is quite large. NVIDIA has become a full-blown tech platform for artificial intelligence. Qualcomm's smartphone chip architecture is being applied to new markets like the Industrial Internet of Things and autos. And AMD continues to diversify its mix of products for more exposure to the lucrative data-center and cloud-computing market.
It will be a bumpy ride from day to day, month to month, and sometimes even year to year. But the semiconductor industry is riding incredible growth momentum that will last for many years to come.
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Nicholas Rossolillo and his clients own Advanced Micro Devices, Nvidia, and Qualcomm. The Motley Fool owns and recommends Advanced Micro Devices, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.
