Freeze on chip demand, first tensions from Tsmc to Nvidia

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Can euphoria and disenchantment occur at the same time? Judging by what’s happening to the chip market, the answer is yes. Because while the enthusiasm linked to the boom in artificial intelligence drives the demand for some semiconductors, a series of contributing factors weakens the demand for the most common chips. And moreover, it is the scenario that clearly emerges from the latest accounts of TSMC, the Taiwanese giant which is the largest contract chip manufacturer in the world. A titan that produces semiconductors for many big names (from Nvidia to Apple), and which, given the growing tensions on the island, is moving part of its activities around the world, with billions in investments in Japan, the United States and Germany.

Difficult weeks

TSMC’s quarterly report aside, the fact that the current weeks are difficult for chip-related companies can also be understood from the performance on the stock market. Since last Monday 25 March, in fact, they have all paid their dues, interrupting a growth cycle that seemed interminable. Even Nvidia, the company that best interpreted the artificial intelligence boom linked to the world of chips, slowed down its run, slipping by around 15% and burning over 350 billion in market capitalization. Heavy collapses for the outsiders Arm (-32%), Intel (-17%) and AMD (-16%), demonstrating that spring 2024 has not started in the best way for chip manufacturers. Furthermore, Friday was a challenging one for the sector. Because after the TSMC data, the market reacted heavily, recording the worst day of 2024 for silicon stocks. Nvidia lost 10% in trading on Friday, April 19, in New York. And similar performances were recorded by the others: from AMD to Arm, which even closed at -16.9%.

Weak consumption and high rates

But let’s go back to TSMC data, which is the pulse of this market. The Taiwanese company has cut its expectations for the growth of the semiconductor market in 2024 (-10%, compared to expected), excluding memory chips, which are those dedicated to artificial intelligence, from this sort of debacle. Chief Executive CC Wei also cut his growth forecast for the foundry sector, of which TSMC is the leader. These are numbers that tell how the chip market is paying for the consumption crisis and the too many inventories accumulated in the schizophrenic push for production triggered by the semiconductor crisis induced by the pandemic. “Macroeconomic and geopolitical uncertainty persists,” said the CEO of TSMC, “potentially weighing on consumer confidence and demand.” Without forgetting that expectations on interest rates have changed, pushing away hypotheses about cuts and tightening consumption. Thus cars, smartphones, personal computers, game consoles, household appliances and the whole wide world of objects that contain microprocessors are freezing a market that was in the grip of the euphoria of artificial intelligence. Or perhaps they split it in two, with divergent fortunes for those who produce chips for consumer products and those who dedicate themselves to the more advanced ones which are the heart and legs of chatbots like ChatGPT.

One train, two speeds

And indeed, over the long term, investors expect AI-focused chips to gradually take a larger share of this market’s revenue. So much so that revenues from TSMC’s AI-related semiconductors are growing at a rate of 50% per year, according to data provided by the Asian company in January. However, some investors remain more cautious, arguing that the current level of demand for AI chips is unsustainable in the long term. Other very serious unknowns concern the tensions looming along the Taiwan Strait, where China and the United States are playing an enormous geopolitical game.