Chip Sector Stumbles on Semiconductor Demand Concerns
Seoul, South Korea - Chip stocks faced a broad sell-off on Thursday following comments from an Nvidia (NVDA) supplier expressing uncertainty in semiconductor demand for 2023.
SK Hynix (000660.KS), a South Korean memory chip manufacturer that supplies Nvidia's GPUs, reported fourth-quarter earnings that exceeded expectations. However, during a post-earnings call, SK Hynix's head of finance, Woo-Hyun Kim, raised concerns about the year ahead.
"2023's memory demand outlook is clouded by inventory adjustments from PC and smartphone OEMs [original equipment manufacturers] as well as strengthened protective trade policies and geopolitical risks," Kim said.
As a result of these comments, Nvidia's stock dropped by 2%, while British chip designer Arm (ARM) and SK Hynix rival Micron (MU) fell by nearly 6% and 4%, respectively.
Meanwhile, Nvidia's rival Advanced Micro Devices (AMD) and Broadcom (AVGO) both experienced declines of around 1%. The overall downturn follows a rally the previous day due to news of the Stargate AI infrastructure project, funded by OpenAI, SoftBank, Oracle, and MGX.
Analysts at Needham highlight the divergence between semiconductors used in consumer products and those for data center AI applications. "Semiconductor suppliers exposed to the PC, smartphone, industrial, and automotive sectors have faced pressure due to weak demand and excess inventory," they wrote in a note to investors. "In contrast, the AI segment has seen strong demand due to the acceleration of AI infrastructure deployments."
SK Hynix's Kim also noted this transition, stating that the memory market is shifting from a commodity-driven approach to a focus on high-performance and high-quality products for AI applications.
However, Needham analysts caution that the divergence between non-AI and AI chip stocks may diminish as AI revenue growth is expected to decelerate in 2023. Big Tech companies, such as Google and Microsoft, have indicated plans to moderate their AI spending going forward.