Key Points
Nvidia stock has fallen 4.7% this year so far through Friday’s close.
The tech sector faces inflationary risks from energy and transportation costs, not direct semiconductor production interruption.
Asian chip suppliers SK Hynix and Samsung Electronics dropped 9.5% and 7.8% respectively amid regional energy concerns.
Nvidia and other chip stocks were rebounding in afternoon trading on Monday despite geopolitical risks, after earnings reports last week showed that demand for the hardware that powers artificial intelligence remains strong.
Nvidia stock was up 2.7%, Broadcom rose 4.6%, Marvell Technology gained 3.4%, and AMD and Intel both popped about 5%.
Nvidia reported strong earnings on Feb. 25 that handily beat analyst estimates and pointed to continued strong demand for its products. But the stock, along with other chip makers, dropped following the results as sentiment for the broader tech sector waned.
Sentiment seems to be turning around for chip makers, thanks to solid earnings reports from Broadcom and Marvell last week.
“This space is on fire despite stock price disconnects YTD for basically all of AI semis,” Melius Research analyst Ben Reitzes wrote on Friday.
Monday’s rally in semi stocks comes after Nvidia and peers initially dropped earlier in the day over fears about potential disruption to the chip supply chain from conflict in the Middle East.
Nvidia stock has fallen 4.7% this year so far through Friday’s close. The move was in line with the wider market as investors assessed the potential disruption from rising energy prices.
“For the technology sector the immediate risk is not a direct interruption in semiconductor production but a broader inflationary impact through energy and transportation costs,” wrote Brad Gastwirth, global head of research and market intelligence at Circular Technologies, in a research note. “Semiconductor fabrication facilities are extremely energy intensive and any sustained increase in electricity or fuel prices can affect manufacturing economics.”
So far, the hardest-hit companies have been in Asia. Much of the region is heavily dependent on oil and gas supplies that are normally shipped through the Strait of Hormuz, which is currently effectively blocked due to the conflict in Iran.
Taiwan Semiconductor Manufacturing (TSMC), the world’s largest chip manufacturer, fell 4.2% in local trading in Taiwan on Monday. TSMC is responsible for around 9% of Taiwan’s overall electricity consumption, with gas being the single largest source of the self-ruled island’s power.
South Korean chip companies SK Hynix and Samsung Electronics, both of which are key suppliers of memory components to Nvidia, fell 9.5% and 7.8%, respectively, in local trading in Seoul. The South Korean government last week issued a precautionary alert over a possible energy supply disruption, although it also said it hadn’t experienced any disruption in energy supplies and had sufficient short-term capacity.
The next likely catalyst for Nvidia is its GTC conference, being held from March 16-19. The chip maker is expected to show off some significant hardware innovations.
