Chip Stocks Plunge Amid China Concerns to End Strong August

Chip stocks, led by Nvidia and Broadcom, declined on Friday amid concerns over China sales and US restrictions on chip imports. Marvell Technology shares plummeted after missing its outlook, while Alibaba's cloud computing unit developed a new chip to fill the void left by Nvidia's H20 AI chip. The PHLX Semiconductor Index fell 3% despite a strong month for chipmakers, driven by optimism about AI-driven growth.

Chip stocks, led by Nvidia and Broadcom, experienced a significant decline on Friday, driven by concerns over China sales and U.S. restrictions on chip imports. The PHLX Semiconductor Index fell by 3% despite a strong August for the sector, which was buoyed by optimism about AI-driven growth [2].

Marvell Technology shares plummeted after the company missed its revenue outlook for the third quarter, with CEO Matt Murphy stating that data center revenue would remain "sequentially flat" [1]. This disappointing guidance rattled investors who were expecting stronger growth in the company's key segment, which powers artificial intelligence infrastructure. Marvell's revenue is increasingly tied to its custom chip business, serving major cloud providers such as Amazon and Microsoft. However, both companies are investing heavily in in-house semiconductor development to reduce reliance on Nvidia, raising uncertainty about long-term demand for Marvell's solutions [1].

A recent report suggested that Microsoft may delay the rollout of its in-house AI chips until 2028 or later, adding to Marvell's concerns [1]. The company's smaller scale compared to rivals could be a disadvantage, as analysts warn that Marvell may face challenges in maintaining margins [1].

Meanwhile, Alibaba Group's cloud computing unit reportedly developed a new chip more advanced than its legacy products, which could help fill the void left by Nvidia's H20 AI chip that has yet to resume sales in China [2]. Alibaba's shares surged 13% following the announcement, demonstrating investor confidence in the company's technological advancements [2].

The Trump administration's decision to eliminate a Biden-era loophole allowing Samsung and SK Hynix subsidiaries in China to import American chipmaking equipment and software without a license could make it more difficult for these companies to upgrade their plants, potentially affecting supply chains for other chip firms [2]. This move is set to take effect in January and may have broader implications for the semiconductor industry.

Despite Friday's selloff, Marvell expects stronger performance in the fourth quarter, projecting an uptick in custom chip orders later in the year [1]. However, the company's shares are trading at a 12-month forward price-to-earnings ratio of 23.95, compared to Broadcom's 39.03, indicating a higher valuation for Broadcom [1].

In summary, chip stocks faced significant headwinds on Friday due to concerns over China sales, U.S. restrictions on chip imports, and Marvell's missed revenue outlook. However, the sector remains optimistic about AI-driven growth, which has been a key driver for chipmaker performance in recent months.

References:
[1] https://news.az/news/marvell-shares-plunge-as-data-center-outlook-raises-ai-chip-concerns
[2] https://www.investopedia.com/nvidia-broadcom-lead-chip-stocks-lower-amid-china-concerns-to-end-a-strong-month-11800731