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Perhaps the most serious sector of the artificial intelligence story of 2023 and 2024 was that of semiconductors. This can be clearly seen when we take a look at the most important ETF of this sector, the paper bearing the ticker SMH, represented by weekly candles from January 4, 2021 to April 19, 2024:
This chip sector ETF rose 73 percent in the year 2023, which was a meaningful relative strength compared to the 54 percent plus of the otherwise soaring Nasdaq-100 index and the 24 percent plus of the S&P 500 index. This year, on March 8, the semiconductor ETF added an additional 37 percent to this sensational performance at its daily peak (and at the same time the peak of its life). 14 percent remained.
On the chart, this ETF left a very, very ugly last candle with its weekly drop of 9.7 percent between April 15 and 19, 2024. But this three-day drop, which mainly took place between April 17 and 19, was only the last sequence of events in the sector’s six-week peaking process.
What took place in the semiconductor sector and next to it in the story of artificial intelligence in March and April this year, was a process suitable for stock market textbooks as the endgame of a rather overheated rise reminiscent of previous manias. It is therefore worth taking the instructive steps of this summit.
To do this, let’s travel back to March 8, 2024, when the chip sector died out at the end of the first hour of trading, but in fact the entire technology sector and, in fact, the story of artificial intelligence rose. The following figure shows how much the most serious semiconductor stocks were in 2024 at their daily peak on March 8, and how much year-to-date they are in plus (possibly minus!) calculated with the closing prices on April 19:
The figure shows that the past six weeks have left a hard mark on the performances that seemed supersonic after the first two months of this year. A huge meltdown occurred in all segments of this sector, but even within this there are two glaring examples: Intel, which is unable to turn a profit this year, and AMD, which has turned its 50+ percent rise at the beginning of March this year into a tiny minus.
These two chip manufacturers have a very serious difference compared to Nvidia. And this is that Nvidia already proved to everyone in 2023 that it can make a profit of tens of billions of dollars from the investment boom surrounding artificial intelligence developments, given that it had (and still has) almost the only product for data centers that all technological behemoth needs these days. Intel and AMD, on the other hand, until now are only a kind of promise in the AI story that at some point they too will have a competitive product, their AI chip in this competition that requires investment speed.
In November and December of last year, and in January and February of this year, there was such a strong narrative behind the conquest of artificial intelligence stocks in the US stock market (which was only confirmed by Nvidia’s figures published at the end of February) that, to varying degrees, almost all chip stocks (except for Intel this year) together rose. Regardless of whether it was already a proven company, i.e. able to make money from the investment boom, or just an “option” with future promise.
In the life of the semiconductor sector, after the hysterical peaks on March 8, a sharp split occurred in the performance of individual shares. The proofers were typically able to hold their own for many more weeks, while in some cases the pledges against them already received offers as if we were in a bear market. I can show this visually on two pairs of parallel graphs.
The first graph pair is Intel and the Nasdaq-100 index between October 2, 2023 and April 19, 2024:
Blue rectangles show the period between March 8, 2024 and April 11, 2024, when this separation became really sharp. While the large-cap technology index was still sideways, Intel fell by around 20 percent on its own.
The second graph pair is AMD and Broadcom, which rose as a kind of prince for a long time together with the king of the market, Nvidia. Here, too, between October 2, 2023 and April 19, 2024, let’s look at the two charts on a daily candlestick chart:
And here, too, we can see the sharp split between March 8, 2024 and April 11, 2024: during this period, AMD fell by around 25 percent in just five weeks, while Broadcom fell by only 2 percent.
A few days ago, I actually wanted to write about the suffering of these promising stocks, but then a perfect storm came to the market that knocked the members of the chip sector off their feet like dominoes between Wednesday and Friday of last week. This domino effect can already be seen in the graphs of this paper so far, which in the last trading week brought the US stock market from the suffering of the promise shares in March and early April to the ABAI phenomenon at the end of last week. ABAI stands for anything but AI. The American capital market likes to give acronyms to individual processes, this was no different now, and it well expresses the reversal that the stock market has produced in recent days in contrast to the drag segment of the past 15-16 months.
Last week, the S&P 500 index fell by 3.1 percent, while the Nasdaq-100 index fell by 5.4 percent. The market imposed an even greater burden on the largest segment of the S&P 500 index, with a weight of 29.7 percent, the information technology sector, which was forced to post a 7.3 percent loss in one week.
Last week’s global capital market trading was dominated by the Iran-Israel conflict, and both Monday and Friday’s trading day were spent in the context of processing one attack on the other. In my firm opinion, however, there was much more important news for the American stock market, which was quite hidden behind the lines. This news came from the Netherlands on Wednesday morning European time, in connection with the report of the 3rd largest listed company in Europe and the 25th largest in the global list.
ASML, the largest company in the chip equipment maker sub-segment, indicated to the market in its rapid report, in addition to the floor-breaking sales in Taiwan and South Korea, that it now has only 3.6 billion euros of undelivered orders compared to 9.2 billion euros a quarter earlier (analysts expected an amount of 5 billion euros).
After the manic rise of the last few months, this news hit investors like a cold shower, also in relation to the stocks of the chip sector, which have already proved themselves in the story of artificial intelligence. If far fewer chip machines are needed than expected, then it may well be that there is not as much demand for the chips as the market has priced in with the exponential rise in prices. And the semiconductor stock charts, which were technically already slightly damaged, could not withstand this disconcerting bad news, given that many stocks were priced for perfection.
The other interesting part of the story is that this sophisticated piece of bad news crossed the market in a rather over-positioned state. The public still made a meaningful attempt to maintain the broad market, which could be seen from the fact that the S&P 500 index started trading with gains on Monday, Wednesday and Friday, which brought bad news, but on all three days the institutional road roller finally arrived, which crushed it under itself. the stock market. It was particularly strong on Wednesday and Friday in the semiconductor sector.
On this Friday trading day, the anything but AI (ABAI) mentality arrived in the market. The Nasdaq-100 index fell 2.1 percent on the closing day of the week. And the S&P 100 large-cap index fell by 1.3 percent, while only 30 index component stocks were in the red, while 70 index member papers rose (in addition, 38 stocks even exceeded 1 percent of these).
However, there were two stocks that took the lead in the fall. And these two stocks were the two best-performing members of the S&P 500 index (even before Friday), Super Micro Computer, which is still up 151 percent this year, and 2024, which is still up 54 percent and slipped back to third place at Friday’s close. Nvidia. This Friday was the final chord of the domino effect of the entire chip sector (here we can consider Super Micro Computer as a kind of related company). Let’s also look at the two charts with daily candles from October 2, 2023 to April 19, 2024 (purple line shows the key 50-day moving average). First the Super Micro Computer:
On Friday, the 50-day moving average and the previous support level (green line) fell simultaneously. The end of the day was a collapse of 23 percent.
And secondly, let’s look at Nvidia’s shares:
Here, too, the 50-day moving average and the previous support level fell simultaneously (green line). The end of the day was a round 10 percent minus.
Both charts show the previous technical break, which was intensified by the fall of the previous supports and the 50-day moving averages. In the meantime, the ASML bad news, which was not noticed by many retail investors, was a deep blow to the institutions that had the upper hand, as a result of which they were only able to get out of the previous favorites with deeper and deeper discounts.
This past week has been a major breakout for the chip sector and a wide range of tech stocks. This can also be seen from the fact that only 1.3 percent of this year’s plus of over 9 percent at the end of March of the Nasdaq-100 index remained by the end of last week. The behemoth flash reports ahead of us may bring positive change this week, but the technology sector may well be able to turn one page at best in the months ahead.
Many other smaller traditional stocks, however, remain strong. I think the biggest question right now is, can the bull market continue without technological support?
Cover image source: Getty Images
