Stocks of companies that make microchips and semiconductors have lost a combined $1 trillion U.S. of market value as investors flee the artificial intelligence (A.I.) trade.
Concerns that a bubble might be forming in A.I. stocks has led to a sharp reversal in former high-flying microchip firms such as SanDisk (SNDK), Micron Technology (MU), and Intel (INTC).
Over the past month, each of those stocks has lost more than 30% after seeing their share price more than double in the year’s first half.
The result is that the world’s most valuable chip stocks have seen more than $1 trillion U.S. wiped off their market capitalizations as investors grow increasingly worried about the sector.
Nvidia (NVDA), a bellwether for the microchip sector, has lost $238 billion U.S. in market value and ceded its crown as the world’s biggest publicly traded company to Apple (AAPL).
The Philadelphia Semiconductor Index (SOX) that tracks the 30 largest U.S. chip stocks has risen 92% over the past 12 months even after a 20% drop over the last month.
In South Korea, the main Kospi stock exchange fell more than 10% in a single day earlier this week as chip stocks Samsung (SSNLF) and SK Hynix (SKHY) plunged.
Analysts say investors are rotating out of chip stocks over concerns that valuations have gotten stretched and amid worries about the amount of money being spent on the A.I. buildout.
The financial results of Alphabet (GOOGL) earlier in July spooked markets as they showed the company plans to spend $205 billion U.S. this year and that its free cash flow turned negative.
There are also worries about cheaper A.I. models emerging from China, which could lead to a price war with U.S. companies, say analysts.
NVDA stock is up 4% this year and trading at $197.01 U.S. per share. Nvidia’s forward price-to-earnings (P/E) ratio of 18 is the lowest it has been since 2015.
