Chip stocks plunge despite strong report from Samsung
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Chip stocks were hammered again Tuesday, despite some reassuring news from a major player, extending their recent slide into a second week.
The big picture: Investors continue to question the sustainability of the AI spending cycle that has fueled record profits for chipmakers and sent stock valuations soaring.
Driving the news: Samsung Electronics, the world's largest memory chipmaker, reported explosive revenue growth and expectations for a huge jump in second-quarter operating profit earlier Tuesday in South Korea, but its shares immediately fell.
- The selloff continued in the U.S., where memory stocks like Micron Technology (-4.7%) and SanDisk (-7.3%) were slammed.
Between the lines: Why was good news for Samsung bad news for the sector?
- Zavier Wong, a market analyst at eToro, cited "concerns that AI infrastructure spending can't keep growing at the pace that has been driving memory prices," per CNBC.
- Tickmill Group analyst Patrick Munnelly, as reported by the WSJ, pointed to the market reaction to Samsung's strong report that chip stocks are "priced for perfection."
Zoom out: The pain wasn't confined to the memory space. Intel closed down 9.7% Tuesday, while Marvell Technology slid 7.5%.
- The iShares Semiconductor ETF, a broad gauge of the semiconductor sector, finished the day down over 5%, and is now down 15% since the end of June.
Context: Chipmakers are still sitting on huge gains. Micron is up nearly 230% since the start of the year, while Intel is nearly 200%. The iShares index, known by its ticker SOXX, is up over 80% year to date.
- And South Korea's SK Hynix, the world's No. 2 memory chipmaker, is preparing a $28 billion listing of ADRs in the U.S., with the deal reportedly being "multiple times oversubscribed" ahead of pricing on Thursday, per Bloomberg.
Yes, but: For a sector priced for perfection, even good news is no longer always good enough.
