Key Points
- Arm’s conservative forecast caused a 16% share drop and sparked concerns about AI spending returns.
- Broader market declines included a 1.4% drop in the S&P 500 and a 2.3% drop in the Nasdaq.
- Intel slumped 13% after announcing workforce cuts and dividend suspension.
- Nvidia shares fell nearly 7% after a record one-day gain but remain significantly higher for the year.
U.S. chip stocks experienced their worst decline since 2020 on Thursday, following a conservative forecast from Arm Holdings that dampened investor optimism about artificial intelligence (AI) and economic data indicating a potential cooling economy. Shares of Arm Holdings dropped 16%, sparking concerns that the anticipated returns from the AI spending surge by tech giants such as Microsoft, Alphabet, Amazon, and Meta Platforms might take longer to materialize.
“Arm is responsible for a lot of the impact on semiconductors today after their guidance,” said Art Hogan, chief market strategist at B. Riley Wealth. “It’s an important company, but perhaps not as important as we made it this year in terms of valuation,” Hogan added.
The broader market also faced significant losses as fears of a slowing economy intensified while the Federal Reserve maintained its restrictive monetary policy. The S&P 500 fell 1.4%, and the Nasdaq dropped 2.3%, almost 8% from its record high close on July 10.
Intel’s announcement of a 13% slump in extended trade further contributed to the market’s decline. The chipmaker revealed plans to cut 15% of its workforce and suspend its dividend as part of a turnaround strategy centered on its loss-making manufacturing business.
The PHLX Semiconductor Index tumbled 7.1%, marking its worst one-day percentage decline since March 2020, when the coronavirus pandemic triggered a global market downturn. This drop erased a 7% spike in the chip index from the previous day, driven by a strong Advanced Micro Devices (AMD) forecast and Microsoft’s significant quarterly AI spending, which had sent Nvidia and other semiconductor stocks soaring.
Nvidia saw a nearly 7% drop, giving back gains from the previous day when its stock had soared 13%, adding $330 billion in market capitalization—a record one-day gain for any company on Wall Street. Despite this setback, Nvidia shares remain 121% higher in 2024, although they are down 19% from their record high close on June 18. Overall, the chip index remains up 16% in 2024.