Why Nvidia, Micron, Broadcom, and Other Artificial Intelligence (AI) and Semiconductor Stocks Slumped on Tuesday

Date:

Some of the biggest drivers of the ongoing market rally that began early last year are the advances in artificial intelligence (AI). These next-generation algorithms and the semiconductors that power them could spark a wave of increased productivity.

The potential to profit from these advances has fueled rapid adoption of AI, which has sent purchases of semiconductors soaring. However, the chip industry could be among the first to feel the impact of the just-announced dockworkers’ strike.

With that as a backdrop, AI chip specialist Nvidia (NASDAQ: NVDA) slumped 3.9%, memory and storage chipmaker Micron Technology (NASDAQ: MU) tumbled 3.9%, semiconductor specialist Broadcom (NASDAQ: AVGO) fell 3.1%, and database and AI chipmaker Oracle (NYSE: ORCL) dropped 1.9%, as of 2:06 p.m. ET on Tuesday.

A check of all the usual suspects — financial reports, regulatory filings, and changes to analysts’ price targets — showed nothing in the way of any company-specific news to explain the falling stock prices. This suggests investors were focused on the work stoppage at some of the biggest ports in the U.S. and what that means for the semiconductor industry and the market rally in general.

Person deep in thought while looking at graphs on a tablet computer.

Image source: Getty Images.

Strike while the iron is hot

On Tuesday, the International Longshoremen’s Association (ILA) began its first widespread strike in almost 50 years. The union said that tens of thousands of its members have begun to hit picket lines at ports along the Atlantic and Gulf coasts beginning at 12:01 a.m. Tuesday.

The ports on those two coasts are the destination for more than half the containerized products imported into the country. If the strike extends for more than a few days, there could be a ripple effect on the supply chain and, by extension, the broader economy.

Delays of everyday products could reignite inflation, cause shortages, and drive up prices. The longer the strike lasts, the more likely the chance of economic upheaval.

Gov. Kathy Hochul of New York said that “the food supply is secure right now,” urging consumers not to stockpile items unnecessarily. While a shortage of essential goods like food and household items is still weeks away, other industries could be affected, including semiconductors.

The accelerating adoption of AI has already caused many of the most advanced chips to be in short supply. As a result, a shortage of semiconductors resulting from the dockworkers’ strike could come sooner rather than later.

Years, not weeks or months

So, what’s the potential impact on our quartet of companies? In the near term, a disruption in the semiconductor pipeline could slow revenue and profit growth. Over the long term, however, any impact would be fleeting at most.

Many AI and semiconductor stocks have been bid up since early last year as investors feared missing out on the next big trend. If a shortage of chips comes to pass due to this strike, it will likely be short-lived, and the pent-up demand will remain once the strike has passed.

Investors should stay focused on the long-term opportunity of AI, which will play out over years, not weeks or months. It takes the most advanced semiconductors to power this technology, so the future remains bright for these pillars of the chip industry.

  • Nvidia created the graphics processing units (GPUs) that provide the computational horsepower used in AI systems.

  • Broadcom creates many of the semiconductors and ancillary technology used in data centers and cloud computing, where much of AI occurs.

  • Oracle is primarily known for its database and cloud infrastructure services, but it also designs and engineers chips used for AI.

  • Micron Technology makes flash memory and storage processors, which are crucial components in the GPUs that are used for AI processing.

Some of these stocks might appear pricey at first glance, but any premium is well deserved. Nvidia, Broadcom, Oracle, and Micron are currently selling for 41 times, 35 times, 27 times, and 11 times forward earnings, respectively. However, given the accelerating adoption of AI and the corresponding accelerating growth of these companies (all of which provide components that are crucial to the AI revolution), I would rate them all buys.

That said, each of these stocks carries increased volatility, and the potential for supply chain disruption could further exacerbate that situation. Investors should hold on for a wild ride.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $744,197!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Why Nvidia, Micron, Broadcom, and Other Artificial Intelligence (AI) and Semiconductor Stocks Slumped on Tuesday was originally published by The Motley Fool

Share post:

Popular

More like this
Related

Michigan expects to start Jack Tuttle at QB vs. Illinois

No. 24 Michigan is expected to start its third...

Bosa, Shanahan differ on 49ers’ need for defensive adjustments

Bosa, Shanahan differ on 49ers' need for defensive adjustments...

Aquarius, Daily Horoscope Today, October 08, 2024: . You are likely to receive recognition – Times of India

October 8, 2024, promises recognition and praise for...