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Adapting to Changes in the Chip Industry
May 1, 2024News
Introduction
In recent times, the entire chip industry, which is the only one to achieve high guidance and have strong future expectations amid the general downturn in the general environment, has also begun to experience negative growth in stock prices at the beginning of the earnings season. So as an industry practitioner, should we be panicked and uneasy?
Panic in the Industry
First, let’s review what brings us a huge sense of panic. First, on April 17, ASML’s financial report showed that in the first quarter, the company’s new order volume was 3.61 billion euros, which was far lower than market expectations of 5.1 billion euros. The lack of guidance from SMCI management about their financial report has also caused negative speculation in the market about future expectations.
Market Correction
The previous market sentiment was generally high and expectations for the future were positive because AI technology is indeed the most certain market growth driver at present. The recent sharp market fluctuations should not be understood as a downturn in future prospects but should be clearly understood as a normal market correction.
Economic Predictions
In the first quarter of 2024, the entire market is expected to see the Federal Reserve cut interest rates at the end of the year, and pent-up market demand will be released by then. Since various recent economic data have shown that the U.S. economy is always in a high-growth expansion range, the Federal Reserve has been unable to find an opportunity to cut interest rates. However, the recently announced performance of leading companies in the chip industry has not supported the judgment of future expectations. Coupled with long-term high interest rates, geopolitical threats, slow inflation, etc., stock prices have fluctuated violently. But analysts at Goldman Sachs have a very unusual view. They believe pension funds are expected to pull out of equities totaling about $325 billion this year due to investment caution. This conclusion is intended to illustrate that the correction to a certain extent is due to the cautious correction of big funds and not because of poor corporate performance. The financial performance of chip companies that have released financial reports so far is still very impressive.
Conclusion
In addition, we should still pay attention to the less eye-catching but very important news. For example, during the recent visit to China by the US Secretary of State, many sensitive topics were discussed again. German Chancellor Schulz also had in-depth talks with China on some strategic considerations. The chip industry and defense demand are still the most certain stable growth industries in the future, and we must try to understand the reasons behind short-term fluctuations. Due to the recent sharp slowdown in house price inflation and the PMI value falling again, falling interest rates will still be the mainstream trend in the future.
FAQ
- Q: Why is there panic in the chip industry despite strong future expectations?
- A: The panic stems from negative growth in stock prices, highlighted by ASML's lower-than-expected new order volume and lack of guidance from SMCI management.
- Q: How should we interpret the recent market fluctuations in the chip industry?
- A: The fluctuations should be seen as a normal market correction rather than a downturn in future prospects. Market sentiment remains positive due to the growth potential of AI technology.
- Q: What other factors should we consider in understanding the chip industry's future prospects?
- A: Attention should also be paid to geopolitical developments, such as discussions between the US Secretary of State and Chinese officials. Despite short-term fluctuations, the chip industry and defense demand are expected to remain stable growth industries.