Stocks of top semiconductor companies TSMC ( TSM 2.35% ) , Intel ( INTC 3.87% ) , and ASML Holdings ( ASML 5.53% ) were showing gains today, with increases of 2.5%, 4.2%, and 5.1% recorded as of 1:36 p.m. ET.
Today, there was limited news related to specific companies. Intel had a small setback while TSMC had a slight advantage. Surprisingly, Intel’s stock price rose more than TSMC’s on the same day.
The sectorwide rally was most likely driven by two significant macroeconomic data points that were published today. These data points helped to alleviate concerns about a recession, reassuring investors that the economy is still on track for a gradual slowdown.
What economic downturn?
The Commerce Department published the U.S. retail sales data for July this morning, revealing a significant increase compared to expectations. Sales in July went up by 1% from the previous month, surpassing the economists’ forecast of 0.3%. This marked a strong recovery from June, which had seen a decline of 0.2%. Notably, spending on electronics saw a 1.6% growth, and auto sales rebounded by 3.6% following a sales limitation due to a cyberattack in June. It is worth mentioning that modern automobiles are increasingly incorporating more semiconductors in their designs.
In addition, the Labor Department reported that there were 227,000 unemployment claims for the week ending on Aug. 10. This number was 7,000 fewer than the previous week and lower than the predicted 235,000 claims.
In combination, these data points appeared to contradict the minimal job expansion and increasing rate of unemployment observed in June. The previous data had raised concerns that the Federal Reserve was lagging in implementing reductions. The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis. , potentially resulting in an economic downturn.
Because the semiconductor industry operates in cycles and experiences long-term growth, its stocks are greatly influenced by economic indicators. Due to the recent surge in stock prices of companies like TSMC and ASML earlier this year, concerns about a recession caused a pullback. Today’s market activity simply reversed this previous trend.
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It might come as a surprise that Intel outperformed TSMC today, despite Intel receiving slightly negative news and TSMC possibly receiving positive news.
As per the The Financial Times is a publication that focuses on financial and business news and analysis. Japanese technology corporation Softbank ( SFTB.Y 3.93% ) It seems that Softbank has decided to withdraw from a chipmaking contract with Intel. Softbank is said to be working on creating an artificial intelligence accelerator and had initially chosen Intel to manufacture it. This decision comes as Intel is expanding its third-party foundry business.
Based on the FT Softbank has withdrawn from the potential agreement, citing Intel’s failure to achieve the required volume and speed goals as the reason. FT Additionally, it has been reported that Softbank is currently negotiating with TSMC to manufacture the chip.
Regardless of the validity of this statement, Softbank’s track record with its technology investments and projects over the past few years has been inconsistent. It is interesting to note that Intel’s stock has risen more than TSMC’s today.
This might be caused by the valuation, as Intel is currently trading at a lower price than before. book value Intel’s stock has performed well this year compared to TSMC. Intel heavily relies on revenue from the PC market, which is more impacted by macroeconomic factors than the AI and mobile chip markets dominated by TSMC. Intel is counting on the PC market continuing to be robust as it completes its manufacturing facility expansion. The company aims to catch up with TSMC in technology by the end of the year, but the actual results are yet to be seen. Due to its greater vulnerability to economic conditions and lower market value, Intel’s stock price has risen more significantly.
Both companies will have to purchase EUV lithography machines from ASML based on the level of demand. With the current strong demand signals, it is now more probable that both companies will increase their investments in ASML’s EUV machines.
Artificial intelligence winners can be purchased when their prices drop.
For those who support the artificial intelligence movement, market declines like the recent one present favorable chances to invest in top-performing AI companies at lower prices. ASML and TSMC are strong contenders for this strategy, while Intel’s future remains uncertain amidst its current transformation.
When the market sentiment improves, beneficiaries of AI can quickly bounce back.
