Making sense of market moves
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AI stocks couldn’t decide where they wanted to go this week.
On Wednesday, semiconductor equipment company ASML accidentally unveiled earnings a day early due to a website malfunction. Shares plummeted 16% after the Dutch company issued a bleak outlook, acknowledging that its 2025 net sales will come in on the lower end of its earlier projected range, between $32.7 billion and $38.1 billion.
The culprit, according to CEO Christophe Fouquet? Slowing demand from China amid the nation’s ongoing economic crisis.
The news dragged the broader semiconductor industry into the red midweek, as investors concluded that this demand slowdown would be a speed bump across the sector.
So why did Taiwan Semiconductor Manufacturing Company announce record-breaking profits in its quarterly earnings report just the next day?
Investors sent shares flying after the Taiwan-based chipmaker reported that its net profit jumped over 50% year-over-year. Management said that, going forward, the company expects its revenue from AI servers and processors to more than triple over the full year.
To put it bluntly: “The demand is real,” said CEO C.C. Wei on the company’s earnings call.
To hype or not to hype
The chipmakers powering Big Tech’s race to all things AI have risen so high over the past year that some investors are wondering if they’ve flown too close to the sun.
AI stocks used to go up and to the right in a straight line seemingly without pause. Lately, however, investors have been going through a cycle of excitement about the gargantuan investments Silicon Valley is making in building out AI data centers and software, then anxiety that high-flying stocks like Nvidia are overpriced.
But even if investors are grading on a curve, the lucrative opportunity for chipmakers is obvious: Nvidia’s revenue grew by triple digits in Q2 for the fourth quarter in a row this year.
And many analysts are still bullish on ASML, believing that its downturn is just temporary.
“In our view, ASML is a good buying opportunity after this pullback, and the current share price is discounting an overly pessimistic long-term scenario,” wrote Morningstar analyst Javier Correonero in a note after earnings were released.
The big picture…While the AI bull run that marked the past year isn’t all hype, even the smartest of analysts disagree about how much further these stocks have to run in the long term.
But one timeless bet? Buying the chips when they’re down.—LB