Chip companies soared overnight

Earlier, we did a report titled "Chip prices plummet, all blame Trump" . In that article, we mainly talked about the huge negative impact on the chip industry due to Trump's aggressive policies. But yesterday, due to the latest policy that the United States may release, chip companies continued to soar overnight.

Reuters reported that U.S. President Joe Biden's administration plans to announce a new rule next month that will expand the U.S. power to block certain foreign exports of semiconductor manufacturing equipment to Chinese chipmakers. But unnamed sources pointed out that goods from allies such as Japan, the Netherlands and South Korea that export key chipmaking equipment will be excluded, limiting the impact of the rule.

It was this sentence that triggered the carnival of chip companies last night.

As a giant in lithography, ASML has been hit hard by relevant US policies in the past few years. Therefore, after the above positive information came out, the Dutch equipment giant took the lead in soaring, and its stock price once rose by 10%. As of 3:59 a.m. Eastern Time, the company's stock price rose by about 7%.

July was a tough month for ASML, judging by the market. Although the company's performance exceeded expectations, its earnings report released earlier this month showed a sharp drop in its stock price. One of the main reasons behind this is that concerns about the Biden administration's restrictions on chip exports to China have weighed on the stock, and investors seem to be shifting from chip stocks to small-cap stocks. The Biden administration is planning to exclude ASML from new export restrictions on China. This is a boon for ASML, as nearly half of its sales come from China.

Last night, Barclays also upgraded ASML to “overweight” from “equal weight,” saying the earlier sell-off in the stock was overdone. The company trades at a price-to-earnings ratio of less than 30 based on 2025 earnings expectations, as it is expected to enter a new growth cycle later this year driven by new extreme ultraviolet (EUV) lithography machines.

ASML 具有显著的竞争优势，因为它是唯一一家 EUV 制造商，而 EUV 可以在微芯片所需的硅晶片上创建复杂的图案，而且该公司的股票看起来很有可能实现长期上涨，特别是如果该公司不受新出口规则的约束的话。

In addition to ASML, Japanese semiconductor equipment giant Tokyo Electron is another company that has benefited from this wave of policies. They surged 7% after the Reuters news came out. In the past 12 months, the company's stock price has risen by 46%.

They forecast in May that sales would rise 20% to 2.2 trillion yen ($14 billion) in the fiscal year ending next March. Operating profit is expected to rise 27.6% to 582 billion yen as global chipmakers continue to invest in advanced technologies amid growing demand for generative artificial intelligence applications.

“We are seeing a recovery and expansion of investments related to advanced logic and memory chips,” Hiroshi Kawamoto, general manager of the company’s finance division, said at an online news conference. That may reflect continued demand for AI chips, as products from chip designers such as U.S.-based Nvidia are in high demand, seen as key components for developing generative AI.

"Demand for cutting-edge logic chips that have invested in 2-nanometer pilot lines or 3-nanometer mass production lines is picking up," a company representative said at a news conference.

Japanese toolmakers have also been hit by unexpected demand for older-generation chip technology from China, where chipmakers are investing in domestic supply chains as they face increasing difficulty sourcing chips and materials due to trade controls imposed by the United States.

According to previous data, China accounts for about 40% of Tokyo Electron's total sales, but they said that this figure may decline in the coming years as sales related to advanced chip technology expand. However, with the relaxation of US policies, Tokyo Electron has also ushered in a new round of benefits.

In addition to the equipment companies mentioned above, other chip equipment stocks in Europe and Asia, including ASM International NV and Disco Corp., also rose.

Amir Anvarzadeh, a divisional analyst at Asymmetric Advisors, said the only reason the U.S. would exclude semiconductor equipment produced in the Netherlands and Japan is that “these countries are likely to comply with its request for a stricter export policy to China without the U.S. having to resort to the foreign direct product rule.” “The market may mistakenly believe that companies in these countries are free to export the chipmaking tools that the U.S. wants to restrict in China, thereby driving up the prices of these stocks.”

If the surge in equipment companies was stimulated by good news, then the carnival of AMD and Nvidia was achieved with real data.

First, AMD's stock price rose 5% at the opening, driven by the double positive impact of the US and the company's performance. The company previously released its second-quarter earnings report, with revenue and profit exceeding expectations. AMD's data center business grew strongly, thanks to sales of graphics processors (GPUs) used to train artificial intelligence models.

Although AMD is still far behind Nvidia in the field of AI chips, the company's latest financial report released yesterday shows that its AI chip business is accelerating. The company's Instinct MI300 chip, which is used in high-end servers to support AI tasks, reportedly brought in more than $1 billion in revenue in the second quarter of 2024 alone, setting a record high for the chip. The company also increased its future forecasts at the same time. AMD CEO Lisa Su said the company expects AI chip sales to reach $4.5 billion this year, an increase of 11% over previous expectations.

AMD's AI chips helped the company achieve record data center revenue of $2.8 billion, up 115% year-over-year. AMD's revenue for the quarter was $5.8 billion, up 9% year-over-year. Data center revenue accounts for nearly half of the company's total revenue, and the growth shows that the company has a seat at the table in the artificial intelligence boom, something that investors have long anticipated as the company's stock price soared last year but has recently pulled back.

In short, AMD's data center revenue results show that the company has no shortage of customers in the AI ​​space, and its chips for AI servers are more popular than ever. Investors this morning took this as a good sign for AMD's future. Of course, AMD still has a long way to go before it can replace Nvidia as the king of AI chips. But its second-quarter earnings show that the company is one of the rising giants in the field.

Morgan Stanley analysts responded to AMD's report, saying the company's third-quarter revenue outlook reflects strong momentum in its computing business. "By all accounts, it was a good quarter. We had not expected to raise guidance, so the better guidance was a surprise," the bank wrote.

“Given management’s enthusiasm for AI in Q2 talk, we had predicted the number might be up slightly, which it was - which also helped the number,” Morgan Stanley said. “We highlighted concerns that expectations for AI were too high, and as predicted, that concern was somewhat mitigated by the sharp sell-off in AI-related stocks. Our number is only up slightly - delaying the recovery of the 70% gross margin Xilinx business, which weighed on gross margins and EPS - but the stock price should see some relief.”

After AMD achieved good performance, Nvidia also rose.

Nvidia shares closed up 13% on Wednesday after top customer Microsoft and rival AMD said the construction of billions of dollars of AI servers based on GPUs will not slow down, CNBC reported.

Microsoft CEO Satya Nadella and finance chief Amy Hood said on Tuesday that the company plans to spend more on Nvidia-based infrastructure next year. Microsoft spent $19 billion in capital expenditures in the fiscal fourth quarter, about 60% of which went on hardware. The tech giant also said its investments in expensive GPU-based servers are paying off.

The company’s comments on the earnings call eased investor concerns that Nvidia’s growth in AI sales was tied to an arms race among cloud providers that may be slowing. Microsoft’s earnings report “will likely encourage most Nvidia/semiconductor investors as Microsoft’s capex for the quarter came in much higher than expected at $19 billion,” UBS analyst Karl Keirstead wrote in a note Wednesday.

Nvidia has been a major beneficiary of the AI ​​boom. Its stock price has doubled so far in 2024, and has risen more than 500% since the release of ChatGPT in November 2022, sparking strong investor interest in artificial intelligence technology.

Morgan Stanley analysts named Nvidia a "top pick" in a note on Wednesday, saying concerns including competitive dynamics, export controls and supply chain issues could "fade over time." "Our view is that the market has taken a very bearish view of some of the hyperscale commentary, while clients clearly want to continue to invest resources in developing multi-modal generative AI," Morgan Stanley analyst Joseph Moore wrote.

Moore also highlighted that Nvidia's ongoing transition from the previous generation "Hopper" or H100 series chips to the next generation Blackwell chips could spur more sales. "Our checks generally show that customers want to deploy GPUs as quickly as possible, and the resilience of Blackwell H100, which was delivered to us in even a few weeks, makes these spending concerns appear premature," Moore wrote.

Goldman Sachs analysts said the Microsoft and AMD data contradict growing investor concerns that a handful of cloud computing providers and large technology companies are investing too much money in Nvidia chips and building too much infrastructure too quickly.

"We view AMD's data center GPU business outlook as positive, and Microsoft's indication of continued capital spending increases in fiscal 2025 bodes well for Nvidia," Goldman Sachs analyst Toshiya Hari said in a note on Wednesday.

In addition to these two giants, many chip companies also performed well.

For example, according to data from S&P Global Market Intelligence, as of 11:45 a.m. ET, Broadcom's stock price rose 10.2%. Samsung's stock price closed up 3.58% in South Korea. Rival SK Hynix's stock price also closed up 3%. TSMC, a major foundry, also rose more than 4%.

Although many US chip companies had good performance last night, like most market developments in the world, the entire chip market has different ups and downs. For example, as the main supporter behind the chip, Arm fell 11% last night.

Arm's conservative revenue forecast triggered a sell-off in the British chip company's shares on Wednesday as investors worried that the returns from a spending spree for artificial intelligence computing would be slower to materialize than at chipmakers such as Nvidia, Reuters reported. As a result, Arm Holdings shares fell 11% after hours, and if Thursday's decline continues, the company's market value will shrink by about $20 billion.

According to relevant information, Arm CEO Rene Haas said in a conference call after the report was released that it may take several years (about four years for AI server chips) to get windfalls from designs licensed this year. Haas said: "Thinking about all this increased licensing activity is a good predictor of future royalty growth."

Michael Schulman, chief investment officer at Running Point Capital, also noted: "While Arm Holdings' earnings performance was impressive, their cautious (tepid) full-year forecast dampened morale." "Arm still benefits from the surge in AI spending, but weakness in other markets (possibly due to excess inventory) has caused management to lower its overly high expectations." Michael Schulman said.

Still, the company's first-quarter revenue rose 39% to $939 million, beating analysts' expectations of $902.7 million. Arm Chief Financial Officer Jason Child told Reuters in an interview that the revenue growth was mainly due to the company signing "several" important licensing agreements, although its royalty income was affected by several weak end markets.

It is worth mentioning that, according to Reuters, Arm's revenue in the Chinese market fell to about 13% of total sales, which usually accounts for 20% or more of total quarterly sales. Royalties fees in the Chinese market increased by 114%, but its licensing business shrank by 68% this quarter. The sharp increase in Chinese royalty fees means that the number of mobile phones using chips from companies such as Qualcomm and Apple has decreased.

Another chip giant, Qualcomm, on Wednesday forecast fourth-quarter revenue to be higher than Wall Street expectations, betting on strong demand for high-end Android devices and the need for more chips in smartphones undergoing AI upgrades. Its shares rose more than 5% in after-hours trading, but the company later pared gains and fell 1.4% as the United States revoked an export license for sanctioned Chinese telecom company Huawei, affecting its revenue.

Reuters said tighter export restrictions on high-end chip technology shared with China and rising trade tensions between the United States and China have hindered chipmakers from serving one of the largest semiconductor markets. Qualcomm Chief Financial Officer Akash Palkhiwala said after the earnings call: "This change will affect our revenue this quarter and the first quarter of fiscal 2025," but did not elaborate on the impact.

But Alex Rogers, president of Qualcomm's licensing division, said the company would continue negotiations with Huawei.

MediaTek is not optimistic about the future. The company's legal entity believes that future operations will be in a good situation of "short-term bearish and long-term bullish". Due to the continuous impact of the inventory adjustment of mobile phone 5G SoC in the short term, the third quarter financial forecast is conservative, the quarterly revenue growth rate is between -3% and +4%, and there is a possibility of recession, and the short-term peak season is not prosperous.

At the same time, wafer foundries World Advanced Semiconductor and UMC are not optimistic about the future outlook.

After World Advanced was pessimistic about the second half of the year and the future, Wang Shi, co-president of UMC, also said yesterday that the company will face some profit pressure in the second half of the year. "In the second half of the year, the inventory of customers in the fields of communications, consumer electronics and computers will return to the previous seasonal level and reach a healthy level by the end of the year, but the demand for automotive terminals continues to be weak, and the inventory adjustment time is expected to be extended, and it is expected to return to a healthy level in the first quarter of next year," Wang Shi said.

In fact, we previously disclosed some of the current status of the chip industry in an article titled "Is the Chip Industry OK?" , especially referring to mature chips. I also believe that, apart from AI and Nvidia, the entire semiconductor market is still in a bleak state.

What do you think about the second half of the year?

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