US Chip Stocks Set to Wipe Out $2 Trillion after Latest Selloff

US semiconductor stocks are set to lose $2 trillion in market value in the steep selloff since last week, driven by rising interest-rate hike bets and concerns over the cost of the AI buildout.

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US semiconductor stocks were set to lose $2 trillion in market value on Thursday, extending a brutal selloff that has wiped out $1.64 trillion over the past six sessions, according to Reuters. The Philadelphia SE Semiconductor index was last down 3.3%. The selloff has been driven by a combination of factors. Hotter-than-expected September inflation data has raised fears that the Federal Reserve may raise interest rates further, making borrowing more expensive for the capital-intensive AI infrastructure buildout. Rising Treasury yields, which recently reached 24-year highs, have added to the pressure.

The AI Spending Question

Investors are increasingly questioning whether companies borrowing heavily to build AI data centers can generate enough cash to service their debts. CoreWeave, a specialized AI cloud provider, saw its bond yields approach 15%, signaling that lenders are demanding greater compensation for funding the AI expansion.

"This is the first time in this AI cycle that the bond market, rather than the equity market, is beginning to dictate the conversation," said Charu Chanana, chief investment strategist at Saxo Markets.

Broadcom CEO Hock Tan added fuel to the fire when he likened AI investors to gambling in a casino, saying "a lot of investors have no clue what they are investing in" and that they "set very extreme expectations only to find out that it's almost like they are in a casino."

Individual Stock Declines

Nvidia slid 1.8%, while Intel and AMD fell more than 3% each in Thursday trading. AMD was down 5.7% on Wednesday and continued falling, trading at $570.82 at Wednesday's close before extending losses. The stock has retreated over 13% from its October 6th 52-week high of $658.52.

"Yields falling because markets are worried about growth or credit stress is quite different from yields falling because the Fed can comfortably ease," Chanana said.

Competition from China

Another factor weighing on chip stocks is competition from China. Chinese chipmaker CXMT reported progress in making denser memory chips, raising concerns that increased competition could erode the high prices and profits investors expect from Micron and SK Hynix. Richard Tang, Julius Baer's head of research for Hong Kong, noted that the development triggered an immediate sell-off of US and South Korean memory makers.

What's Next?

Despite the selloff, some analysts see opportunity. Dan Ives of Yorkville Ives said the correction represents a buying opportunity and that the AI infrastructure boom is still in its early stages, noting that "what would change our view would be a demand signal, not an interest rate signal."  Investors are now focused on earnings to see whether AI spending is translating into sustainable revenue and profits.

Here is the question The Silicon Review raises. US chip stocks are set to lose $2 trillion as investors question whether the AI infrastructure boom can generate enough returns to justify its enormous costs. When the bond market starts dictating the AI conversation, has the boom finally met its first real constraint and is it capital, not compute, that will determine who survives?

FAQ:

Q: How much have US chip stocks lost in the selloff?
A: US semiconductor stocks were set to lose $2 trillion in market value on Thursday, adding to a $1.64 trillion wipeout over the past six sessions.

Q: Why are chip stocks falling?
A: The selloff is driven by hotter-than-expected inflation data raising fears of further Fed rate hikes, concerns over AI infrastructure financing costs, and competition from Chinese chipmakers .

Q: How are individual chip stocks performing?
A: Nvidia slid 1.8%, Intel and AMD fell more than 3% each, while AMD was down 5.7% on Wednesday.

Q: What did Broadcom's CEO say about AI investors?
A: Broadcom CEO Hock Tan likened AI investors to gambling in a casino, saying many have "no clue what they are investing in" and set "very extreme expectations."

Q: What role is China playing in the chip selloff?
A: Chinese chipmaker CXMT reported progress in denser memory chips, raising concerns about competition eroding profits for Micron and SK Hynix.

Q: Are analysts bullish or bearish on chip stocks?
A: Some analysts see the selloff as a buying opportunity. Dan Ives said the AI boom is still early and "what would change our view would be a demand signal, not an interest rate signal."