Why Did Semiconductor Stocks Plunge Across the Board on Friday? Mizuho Securities Analysis: Result of Multiple Overlapping Factors

On Friday (24th), U.S. semiconductor stocks broadly weakened. Market analysts pointed out that this wave of selling pressure was not caused by a single negative factor, but rather the result of multiple intertwined variables.

According to MarketWatch, the iShares Semiconductor ETF (SOXX-US), which tracks semiconductor stocks, closed down 4.40% that day. Individual stocks also suffered heavy losses: Micron Technology (MU-US) plunged 6.99%, Intel (INTC-US) fell 7.89%. Optical communications-related stocks were also heavily sold off, with Coherent (COHR-US) dropping 9.84% and Lumentum (LITE-US) closing down 8.47%.

Daniel O'Regan, Managing Director at Mizuho Securities, noted in a client report that the most frequently asked question from clients that day was why the semiconductor sector performed so weakly, while other technology sectors remained relatively stable.

O'Regan emphasized that there is no 'single culprit' behind this downturn, but rather a combination of multiple overlapping factors.

First, despite Intel reporting strong earnings, its stock gave up all of its early gains. O'Regan stated that Intel's solid earnings failing to drive share price gains may be dragging down overall market sentiment in the semiconductor sector.

Intel's second-quarter revenue posted its strongest growth in 15 years, with overall performance generally exceeding market expectations.

Additionally, O'Regan pointed out that Chinese memory chip manufacturer ChangXin Storage is scheduled to conduct its initial public offering (IPO) in Shanghai on Monday.

However, he believes the threat posed by China's memory industry to U.S. memory manufacturers is 'overstated,' while also noting that recent reports suggesting Apple (AAPL-US) is in talks with ChangXin Storage may have prompted investors to reassess the company's potential future impact.

According to Reuters, the U.S. is currently pausing the addition of ChangXin Storage to its export blacklist, though the company has been designated a national security risk and has been approved for inclusion on the U.S. Department of Commerce's 'Entity List'.

Meanwhile, O'Regan also noted that market discussions around capital expenditures by hyperscale cloud service providers are intensifying. Investors are beginning to question whether, amid persistently high borrowing costs, continued investment in overall AI infrastructure and the financing capabilities of related companies remain viable.

According to a report released by Moody's (MCO-US) on Wednesday, the combined capital expenditures of the world's six largest hyperscale cloud service providers are expected to reach approximately $785 billion this year, approaching $1 trillion by 2027.

The six companies covered in the report are Microsoft (MSFT-US), Amazon (AMZN-US), Alphabet (GOOGL-US), Meta (META-US), Oracle (ORCL-US), and CoreWeave (CRWV-US).

The report, led by Moody's Senior Vice President Raj Joshi, points out that the increasingly tight interdependence among AI labs, hyperscale cloud providers, and high-end chip companies is introducing greater risk across the entire industry. The report notes that multiple collaborations, investments, and value chain agreements have already been established among these firms.

The report states: 'Hyperscale cloud providers and semiconductor companies are strategically embedding their hardware and software technologies into developer ecosystems through partnerships, equity stakes, and guarantee agreements. However, if the massive AI product demand anticipated by the market fails to materialize, these arrangements will amplify risks that are already substantial.'

Furthermore, O'Regan also stated that the weak performance of South Korean chip stocks may be creating a ripple effect across the global semiconductor sector. South Korea's KOSPI index plunged 5.72% on Friday.