Over $100 billion wiped out in two days as US semiconductor stocks fall

US chip stocks have witnessed a notable decline, marking a departure from their robust performance in 2023, which was the strongest since 2009. This comes after the White House's
directive to a prominent European chipmaker, signalling escalating US-China trade tensions. According to Benzinga, over $100 billion was wiped out from the market in just two days with the fall in semiconductor stocks.

Recent Stock Movements: AMD, Qualcomm, and Broadcom

Shares of major chip players like Advanced Micro Devices (AMD) and Qualcomm experienced declines, with AMD shares falling by 2.35 per cent to $135.32 and Qualcomm shares dropping 1.88 per cent to $137.60.

Overall decline in semiconductor index

The PHLX semiconductor index, Wall Street's main semiconductor benchmark, has faced a continuous decline, plummeting almost 7 per cent since reaching a record high close on December 27. This comes after an exceptional year for the sector, which surged 65 per cent in 2023.

Market sentiment and Federal Reserve's influence

The recent drop in semiconductor stocks aligns with a broader decline in the market as investors await the Federal Reserve's December meeting minutes. The anticipation for clues on interest rate paths has contributed to market volatility.

Factors that drove 2023 semiconductor boom

The semiconductor sector's remarkable performance in 2023 was fueled by optimism about artificial intelligence (AI) and expectations of interest rate cuts by the Federal Reserve. The PHLX's 65 per cent surge outpaced the Nasdaq (43 per cent) and S&P 500 (24 per cent).

Global demand and memory chip trends

Chip stocks benefited from predictions that the global demand downturn, leading to memory chip production cuts in the previous year, had bottomed out.

Government initiatives and awards

The US government's active involvement is evident in plans to award Microchip Technology $162 million to enhance semiconductor and microcontroller unit production. This initiative aims to reduce reliance on foreign sources, particularly China, and bolster the supply chain for critical industries.

Bank of America's analysis and industry recommendations

Bank of America remains bullish on the semiconductor industry for 2024, despite the recent declines. Analyst Vivek Arya recommends exposure to cloud computing and automotive sectors through various semiconductor stocks, according to news agency Reuters.

Market correction and potential recovery

Despite the recent selloff, analysts express optimism about a potential recovery in the semiconductor sector. Arya suggests that 2024 may bring continued upcycles, driven by factors like generative artificial intelligence (GenAI), the US CHIPS Act, and industrial chip inventory corrections.

Risks and challenges ahead

Challenges such as premium valuations, market rotation, and potential volatility due to geopolitical tensions and trade conflicts pose risks to the semiconductor sector in 2024.

US-China trade tensions

Escalating trade tensions between the US and China add to the semiconductor sector's volatility, as seen in the recent directive to a leading European chipmaker.