The Rise and Fall of Chip Stocks
Over the past 12 months, we’ve seen chip stocks reach their peaks, as with the rest of the market in November of 2021. However since then, chip stocks have been a focus of selloffs. Let’s dive into the reasons chip stocks rose and plummeted so quickly.
In the summer of 2021, the economy started rapidly growing following the detrimental drop from COVID-19. Businesses returned operations to their pre-covid levels, and some exceeded expectations. The stock market followed suit, with stocks rocketing to 52w highs. In addition, many stocks reached all time highs. Chip stocks, such as NVDA and AMD reached all time highs (ATHs) of 346.17 and 164.46 respectively.
Microchips, semiconductors, and other forms of micro technology have become an integral part of life. Phones, computers, and now cars rely on microchips to function. Demand has continued to be high for the past few years, and a number of factors has caused this demand to be an issue for manufacturers and consumers alike. A lack of necessary materials and supply chain issues have caused delays and increased prices, causing a unique scenario. Companies like Nvidia were making record profit, despite barely meeting demand. Demand, particularly by a few specific groups has been a main cause for lack of supply. Cryptocurrency interest reached its peak in 2021; crypto mining was also at its peak. Miners utilized this technology, which requires a lot of units and energy to be profitable. The auto industry was also relying more on micro-tech, especially as electric vehicles are becoming more prevalent.
Fast forward to the fall of 2021, the stock market is thriving. At the peak in November: stocks are booming, consumer confidence is at one of the highest points its been, and the holiday season is just around the corner. Increases in technology related purchases helped companies like Nvidia, AMD, and Intel soar in the stock market. Since then however, they have been on a downward spiral with no end in sight. Nvidia for instance, plummeted from its ATH of 346.17 in November to around 120.76 as of market close October 7th.
General market selloffs have contributed to a loss of value for chip stocks, however other factors have had a part to play as well. Causes include changes to trade and sale policies, continued supply chain disruptions, and loss of interest in crypto mining and other practices that require large amounts of this technology.
Changes in US trade policies have hindered Nvidia and AMD from selling certain products in China according to an SEC filing. In September Bloomberg reported that “government actions could cut off some of the semiconductor industry’s biggest companies from the largest market for their products”(Wu, King). More recently, AMD cut its revenue expectations for Q3, which sent the stock down nearly 14%.
The supply chain has continued to be disrupted by a variety of factors. Periodic spikes in COVID-19 cases have caused China to lockdown multiple times following initial lockdowns in March of 2020. These shutdowns have resulted in workplace closings, which can slow down or halt manufacturing activity.
Interest in cryptocurrency and mining has dropped significantly this year. According to Google Trends data as reported by DataTrek Research “Searches for the term ‘bitcoin’ have dropped more than 75 percent since the beginning of this year…”(DataTrek Research). Along with this drop in interest, less people are interested in crypto mining, meaning less GPUs and other forms of tech to mine crypto were sold. As of September, Ethereum completed a merge from Proof-of-Work (mining), to Proof-of-Stake. The change has since resulted in the halting of all Ethereum related mining.
The last year has seen semiconductor and microchip stocks reach 52w highs and lows. Long term there could be an investing opportunity, as the demand for this technology remains high. Its further integration into more products could result in a continued necessity and value recaptured in the stock market.
All information in this article is for educational purposes only and is not to be considered financial advice. Do your own research and consult a financial advisor for advice.
This article references Nvidia’s stock price pre-stock split. Nvidia executed a 10–1 stock split on June 7, 2024.
