Nvidia, a leading semiconductor company, experienced a significant drop in stock prices in September. After enjoying a steady climb for most of the year, fueled by the optimism surrounding the widespread adoption of artificial intelligence and its impact on semiconductor demand, the stock finally lost its steam.
The price of Nvidia shares peaked on August 31st at $493.55, showing an impressive 238% increase from the beginning of the year. However, since then, the shares (ticker: NVDA) have suffered a decline, dropping to as low as $410 before rebounding slightly to $430.89 at Thursday’s close. This represents a nearly 13% decrease from the previous high.
It’s important to note that Nvidia is not the only chip stock to face a challenging September. The iShares Semiconductor ETF (SOXX), which includes a portfolio of 35 chip maker stocks, has also experienced a decline of 7.6% this month.
Other chip companies, such as Applied Materials (AMAT), Lam Research (LRXY), and Broadcom (AVGO), have witnessed similar losses, with decreases of 9.5%, almost 11%, and 9.8% respectively. Among the 52 semiconductor makers categorized by MSCI, only Intel (INTC) has managed to avoid losses as September comes to a close.
It is worth mentioning that the poor performance of these companies is more linked to overall market conditions rather than their individual performance. The S&P 500 has dropped by 4.6% this month, and the technology sector within the index has fared even worse, losing 7% so far in September.
Investors may be capitalizing on the substantial gains made by semiconductor stocks throughout the year by selling and taking profits.
Nvidia surprised Wall Street in August with impressive financial results. The company reported $13.5 billion in revenue for the quarter ending in July, almost double the previous three months’ figure, surpassing the optimistic forecasts of Wall Street by 20%.
Although the stock initially experienced a surge, the gains quickly receded. Nvidia’s management projected sales of $16 billion for the third quarter, but investors seemed cautiously optimistic, waiting for tangible growth before further driving up the stock price.
In summary, Nvidia’s stock experienced a significant dip in September after a remarkable climb, mirroring the broader decline in the semiconductor industry amidst unfavorable market conditions. Despite the dip, Nvidia’s strong financial performance and optimistic projections position it well for potential growth in the future.
Expectations for Higher Bond Yields and the Impact on Semiconductor Stocks
The current landscape for semiconductor stocks is experiencing some challenges due to several factors, including expectations for consistently higher bond yields. As a result, investors are facing a decrease in demand for riskier investments like high-growth tech stocks. Additionally, the rise in interest rates has led to a reduction in the present discounted value of future earnings, which directly affects the appeal of shares in companies like Nvidia.
Another concern for investors is China’s economic situation, as it is a significant market for U.S. chip manufacturers. Since Beijing lifted Covid-19 restrictions last year, the Chinese economy has been facing mounting troubles. This could potentially lead to a decline in semiconductor demand from electronics manufacturers and data centers.
In addition to the economic challenges, there is an escalating tech Cold War between the United States and China. The Biden administration plans to restrict China’s access to American cloud-computing services provided by companies such as Amazon.com and Microsoft. On the other hand, Beijing has already banned the use of iPhones for government employees, creating speculation about potential broader restrictions on U.S. tech products.
Despite these recent setbacks, Wall Street remains optimistic about semiconductor stocks. According to FactSet, among the 54 analysts who cover Nvidia, price targets range from $480 to $1,606 per share, all higher than the current price of $431 per share.
Nvidia is not an isolated case. All 52 semiconductor stocks that have been analyzed possess higher target prices than their current levels. The average implied gains over the next 12 months for these stocks amount to 33%.
It is worth noting that historically, breakdowns like these have acted as only brief respites that ultimately rejuvenate bullish trends. Analysts at sentiment analysis firm SentimenTrader pointed out that a month later, the industry has been higher 90% of the time.
In conclusion, while there are obstacles in the semiconductor market, including expectations for higher bond yields and concerns regarding China, industry experts and analysts remain positive about the future prospects of these stocks.
