Asian Chip Stocks Stumble as Recession Fears Resurface, Nvidia Slides

By Sherry Qin

Asian chip stocks took a hit on Wednesday as markets were unnerved by artificial-intelligence chip giant Nvidia's slump overnight and renewed fears of an economic slowdown.

Shares of Nvidia slid 9.5% on Wall Street on Tuesday amid a broader market selloff, erasing $278.9 billion from the company's market value. That was the biggest one-day market cap decline on record for any U.S. company, according to Dow Jones Market Data.

The drop came after data published Tuesday showed continued weakness in demand for U.S. factories, resurfacing concerns about the health of the U.S. economy and the risk of a spillover onto the global economy.

Asian stocks that form part of Nvidia's global value chain stumbled Wednesday, with Taiwan Semiconductor Manufacturing--the world's largest chip foundry and Nvidia's biggest contract manufacturer--shedding 4.7% in Taipei trade. Foxconn Technology Group, which builds AI servers for the U.S. tech giant, was 2.7% lower. The two index heavyweight sent Taiwan's Taiex benchmark down 3.9%.

In South Korea, shares of SK Hynix, a main supplier of high-bandwidth-memory products for Nvidia's AI accelerators, lost 7.6% in morning trade, underperforming the local benchmark Kospi, which was down 2.9%. Samsung Electronics, the world's top memory-chip maker, was down 3.3%. Samsung is viewed as lagging behind SK Hynix in its position in the global HBM supply chain for Nvidia.

In Tokyo, semiconductor-equipment maker Tokyo Electron was off by 7.6% and Advantest, which makes chip-testing tools, fell 6.9%. The Nikkei index was down over 3%.

Losses among Chinese chip giants listed in Hong Kong were more muted than elsewhere as they are less exposed to advanced AI chip technology. Semiconductor Manufacturing International Corp. and Hua Hong Semiconductor were down 1.7% and 2.15% in Hong Kong, respectively.

Asian chip stocks' "outperformance across the region on the AI hype since the start of the year may lead prices to be more sensitive to any sell-off with a magnified effect," IG market strategist Yeap Jun Rong said in a note.

Investors will now shift attention to Friday's monthly jobs report in the U.S., a key dataset that could influence expectations around the pace and scale of the Federal Reserve's interest-rate cuts.

Concerns that the AI industry boom is slowing may also be in play, analysts say.

Morningstar analyst Phelix Lee said markets may be interpreting remarks from Nvidia's chief executive in a media report as signaling that demand for its AI equipment has peaked. While still expecting above-average growth from AI demand for most of Nvidia's Asian beneficiaries, "revenues [of Asian chip companies] are unlikely to redouble in 2025 or 2026 owing to high base."

Despite the Nvidia selloff, Wedbush analysts remain bullish on the stock, calling it "the new oil and gold in the IT landscape". Tech spending on AI has only just started rippling across the sector, they said.

"The stage is set for tech stocks to move higher into year-end and 2025," as the Fed kicks off its rate-cutting cycle and a "soft landing" for the U.S. economy remains on track, the analysts said in a note.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

September 04, 2024 01:01 ET (05:01 GMT)

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