Why Semiconductor Stocks Crashed Today

What happened

Semiconductor stocks were skyrocketing today. the Nasdaq Compound was down 2.2% at market close on Wednesday, but the big names in the chip sector were down even more.

Company

Market cap/fund size

Daily return (loss)

Nvidia (NVDA -5.88% )

$613 billion

(6%)

Qualcomm (QCOM -4.25% )

$157 billion

(4.3%)

AMD (AMD -2.95% )

$169 billion

(3.1%)

iShares PHLX Semiconductor Fund (SOXX -2.49% )

$8.5 billion

(2.5%)

Data source: YCharts and iShares.

Interestingly, some of the largest companies in the semiconductor industry fell far more than average on the day. Not by chance, it’s probably because these names (NVIDIA, Qualcomm and AMD) have one of the highest growth potentials in the coming years.

Image source: Getty Images.

So what

But why should high-growth companies be crushed by the market? It all has to do with the expected pace of rising interest rates. Minutes from the Federal Reserve’s March 15-16 meeting were released today, and comments indicated that the Fed may be willing to get aggressive in its fight against inflation. This means a faster rise in its benchmark interest rate and a $9 trillion reduction in its balance sheet.

As a reminder, higher rates lower the present value of risky assets like stocks, especially those of fast-growing companies.

Now what

As ugly as it has been for semiconductor stocks like NVIDIA, Qualcomm and AMD this year, it’s important to keep in mind that owning these companies is a long-term endeavour. This in itself creates another snag: some market analysts are beginning to predict a possible slowdown in chip growth in 2023, possibly due to a drop in demand for consumer electronics after a pandemic boom in consumer spending. households.

Nevertheless, the potential for these companies over the next decade is quite significant. NVIDIA has become a full-fledged technology platform for artificial intelligence. Qualcomm’s smartphone chip architecture is being applied to new markets like the Industrial Internet of Things and automotive. And AMD continues to diversify its product line for greater exposure to the lucrative data center and cloud computing market.

It will be a bumpy ride from day to day, month to month and sometimes even year to year. But the semiconductor industry is enjoying incredible growth momentum that will last for many years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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