Chip index collapses 7% as Arm punctures AI optimism

:U.S. chip stocks plummeted on Thursday in their worst day since 2020 after a conservative forecast from Arm Holdings dampened investor optimism about artificial intelligence and data signaled a cooling economy.
Shares of Arm sank 16 per cent after the British chip designer’s forecast sparked worries that returns from a spending frenzy on AI computing by Microsoft, Alphabet, Amazon, Meta Platforms and other megacaps would be slower to materialize than previously expected.
“Arm is responsible for a lot of the impact on semiconductors today after their guidance,” said Art Hogan, chief market strategist at B. Riley Wealth.
“It’s an important company, but perhaps not as important as we made it this year in terms of valuation,” Hogan added.
Losses in chipmakers’ shares and the broader market accelerated after a slew of data spurred concerns the economy may be slowing faster than anticipated while the Federal Reserve maintains its restrictive monetary policy.
The S&P 500 dropped 1.4 per cent. The Nasdaq fell 2.3 per cent, leaving it down almost 8 per cent from its record high close on July 10.
In extended trade, Intel slumped 13 per cent after it said it was cutting 15 per cent of its workforce and suspending its dividend as the chipmaker pursues a turnaround centered around its loss-making manufacturing business.
During Thursday’s session, the PHLX semiconductor index tumbled 7.1 per cent, its worst one-day percentage decline since March 2020 when the coronavirus pandemic sent global markets into a tailspin.
That undid a 7 per cent spike in the chip index on Wednesday after a strong Advanced Micro Devices forecast and Microsoft’s surge in quarterly spending related to AI sent Nvidia and other semiconductor stocks surging.
Nvidia dropped almost 7, giving back gains a day after the dominant AI chipmaker’s stock soared 13 per cent and added $330 billion in market capitalization, a record one-day gain for any company on Wall Street.
Nvidia shares remain 121 per cent higher in 2024 but down 19 per cent from their record high close on June 18.
The chip index remains up 16 per cent in 2024.