Artificial Intelligence (AI) stocks fell on Monday due to geopolitical risk factors. Intel‘s (NASDAQ: INTC), Broadcom‘s (NASDAQ: AVGO)and arm‘s (NASDAQ: ARM) stock prices ended the daily session down 2%, 4.1%, and 5%, according to data from S&P Global Market Intelligence. Meanwhile, Nvidia ended the day down 2.3%, and Micron down 3.8%.
Semiconductor investors were hit by bearish news on many geopolitical fronts today. China is getting around the limits of AI technology that the US has put in place, but that’s hardly the most surprising story.
Chinese military aircraft violated Japanese airspace this morning — an unprecedented encroachment that follows a series of incidents involving Chinese aircraft in the Philippines that have raised concerns. Adding another source of geopolitical uncertainty, Poland said it believed a Russian plane had entered its airspace.
Geopolitical risks took center stage Monday
Aiming to stop the technological advances of its main geopolitical rival, the US has introduced restrictions to prevent advanced chips and semiconductor manufacturing equipment from being sold to China. But The Wall Street Journal published a report this morning stating that China has used a third-party AI processing service to circumvent the export ban.
Leadership in the artificial intelligence space has become a top economic and national security priority for both the US and China. Seeking supremacy in space can drive tensions between higher-ranking rivals.
Recent news of Chinese incursions into Japan and the Philippines has raised some regional concerns, but the bigger specter highlighted for investors is the possibility that China could invade Taiwan at some point in the not-too-distant future. While many companies are designing their own artificial intelligence chips and processors, Taiwan Semiconductor Manufacturing is now responsible for making approximately 80% of the semiconductors used for advanced AI applications. If TSMC’s chip production were to be disrupted or halted, the impact on supply chains and the wider global economy would be dire. It may happen that leads to a wider spread of conflict.
In addition to China-related developments, investors have other geopolitical risk factors to consider. Poland reported that a Russian plane had entered its airspace on its way to Ukraine, raising concerns that the conflict could escalate in the region. News also emerged that security fears at a NATO military base in Germany last week had been sparked by intelligence service reports that Russia may be preparing to sabotage the base using drones.
What’s next for Intel, Broadcom, Arm, and other AI chip stocks?
China news has been a persistent bearish catalyst for chip stocks over the past year, and it is likely that geopolitical risks will continue to be one of the main drivers of short-term volatility. In particular, companies that rely heavily on TSMC for chip fabrication could see an outsized bearish move if the possibility of conflict in Asia increases. This dynamic could explain why Intel is seeing a smaller pullback than Broadcom, Arm, and other AI stocks today.
Although Intel uses TSMC to make some of its most advanced chips, it has vast manufacturing resources. Intel is now the world’s third-largest chip maker, just behind market leaders based in Taiwan and Samsung. With concerns that China may increasingly attack Taiwan, the US-based company is investing heavily in improving its manufacturing capabilities and positioning itself as an alternative to TSMC. But even Intel won’t escape a bigger sell-off if China moves to control Taiwan and TSMC.
However, while geopolitical risk factors will continue to weigh on valuations for semiconductor companies and other AI players, the next big market moving catalyst may be closer on the horizon. Nvidia is scheduled to release its second quarter earnings results after the market closes on Wednesday, which is positioned to be one of the most influential financial reports of 2024.
Nvidia’s business performance and stock moves have often driven other AI stock trades this year, and there’s a chance the company’s upcoming earnings report will have a ripple effect for other artificial intelligence players. If the AI ​​leader’s quarterly results and forward guidance can exceed Wall Street’s expectations, other artificial intelligence stocks could see a significant increase in value. But expectations continue to build towards the report, and even the smallest shortfall can cause significant volatility.
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Keith Noonan holds a position at Micron Technology. Motley Fool positions and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Why Intel, Arm, Broadcom, and Other Artificial Intelligence (AI) Stocks Are Falling Today was originally published by The Motley Fool