Artificial intelligence (AI) stocks fell on Monday due to geopolitical risk factors. Intelof (Nasdaq: INTC), Broadcomof (NASDAQ: AVGO)and armof (Nasdaq: ARM) Shares closed down 2%, 4.1% and 5%, respectively, according to data from S&P Global Market Intelligence. NVIDIA The closing price fell 2.3%. micron It fell 3.8%.
Semiconductor investors were hit with bearish news on multiple geopolitical fronts today, with China sidestepping U.S.-imposed restrictions on AI technology, but that wasn’t the most surprising news of the day.
A Chinese military plane violated Japanese airspace this morning, an unprecedented violation after several incidents involving Chinese aircraft in the Philippines raised concerns, and Poland said a Russian plane appeared to have entered its airspace, adding a new source of geopolitical uncertainty.
Geopolitical risks took center stage on Monday
The United States has introduced restrictions to block the sale of advanced chips and semiconductor manufacturing equipment to China, aiming to thwart the technological advances of its geopolitical rival. The Wall Street Journal A report was released this morning claiming that China is using third-party AI processing services to circumvent these export bans.
Leadership in artificial intelligence has become a key economic and national security priority for both the United States and China, and the pursuit of dominance in the field could further increase tensions between the rivals.
While recent news of Chinese aggression in Japan and the Philippines raises immediate concerns about territorial disputes, a bigger concern for investors is the possibility of China invading Taiwan in the near future. Many companies are designing their own artificial intelligence chips and processors, but Taiwan Semiconductor Manufacturing TSMC is currently responsible for manufacturing approximately 80% of the semiconductors used in advanced AI applications. If TSMC’s chip production were to be disrupted or seized, it could have a devastating impact on the supply chain and the entire global economy – or even serve as the catalyst for a broader escalation of conflict.
In addition to China-related developments, investors should also consider other geopolitical risk factors. Poland reported that a Russian aircraft had entered its airspace en route to Ukraine, raising concerns of an escalating conflict in the region. And news broke last week that security concerns at a NATO military base in Germany were sparked by intelligence reports that Russia may be trying to use drones to destroy the base.
What does the future hold for Intel, Broadcom, Arm, and other AI chip stocks?
News from China has repeatedly been a bearish driver for chip stocks over the past year, and geopolitical risks will likely remain one of the main drivers of near-term volatility. In particular, companies that rely heavily on TSMC for chip manufacturing could experience significant weakness if the possibility of conflict in Asia increases. This development explains why Intel suffered a smaller decline today than Broadcom, Arm, and other AI stocks.
Intel uses TSMC to make its most advanced chips, but it also has significant in-house manufacturing resources: Intel is currently the world’s third-largest chipmaker, behind Taiwan’s TSMC, the Taiwan-based market leader. SamsungThe U.S.-based company has been investing heavily in boosting its manufacturing capabilities and positioning itself as an alternative to TSMC amid growing fears of a Chinese invasion of Taiwan, but even Intel would be hard-pressed to avoid further large-scale divestitures if China were to seize control of Taiwan and TSMC.
But while geopolitical risk factors continue to impact valuations for semiconductor and other AI companies, the next big catalyst for moving the market is likely to come in the much closer future. Nvidia is scheduled to report second-quarter results after the market closes on Wednesday, in what is expected to be one of the most influential financial reports of 2024.
NVIDIA’s performance and stock price movements have frequently influenced trading in other AI stocks this year, and the company’s upcoming earnings report will likely have a ripple effect on other artificial intelligence companies. If the AI leader’s quarterly results and future outlook beat Wall Street expectations, it could significantly boost the valuations of other artificial intelligence stocks. However, expectations are building leading up to the report, and even a slight shortfall could cause significant volatility.
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Keith Noonan invests in Micron Technology. The Motley Fool invests in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends short Intel’s November 2024 $24 call options. The Motley Fool has a disclosure policy.
Why Intel, Arm, Broadcom and other artificial intelligence (AI) stocks fell today was originally published by The Motley Fool
