Semiconductor stocks plummet as market tremors ripple through global portfolios, with giants like Micron and Broadcom experiencing sharp declines of 20% in just two days. The dramatic rollover in these prominent tech shares has dragged down the broader market, prompting investors to scrutinise potential culprits beyond the latest jobs report.
Wolf Richter for Wolf Street posits that while the job growth report showed a decided turnaround after years of weakening, it likely wasn’t the primary trigger for the semiconductor sector’s recent slump. Instead, the focus shifts to the inherent overripeness of these stocks, many of which had reached stratospheric valuations, with three – including Nvidia – having recently been members of the Trillion Dollar Club.
Broadcom’s Guidance Disappointment Triggers Sell-Off
Broadcom (AVGO) emerges as a key suspect in the recent market downturn. Despite reporting an excellent quarter with AI-related revenues doubling and overall revenues jumping 48%, the company’s refusal to increase its forward guidance sent a chilling signal to investors. This perceived lack of future magic led to an immediate 12% tank on Thursday, followed by another nearly 8% drop today. From its peak on Tuesday, Broadcom’s stock has plunged 20%, erasing $450 billion in market valuation. However, for long-term holders, this 20% correction merely brought the stock back to its mid-April levels, highlighting the preceding rapid ascent.
“The refusal to increase guidance was a bad sign, that was a sign that the magic is coming off.”
Micron’s Meteoric Rise and Sudden Reversal
Micron Technology (MU) also played a significant role in the market’s recent volatility. The stock plummeted 13.2% today, compounding yesterday’s 7.7% decline, resulting in a 20% two-day plunge. This wiped out $240 billion in market cap and saw Micron exit the Trillion Dollar Club. The reversal, however, only unwound the gains from the prior eight trading days, underscoring the frenetic pace of its recent spike. Over the past 14 months leading to its peak, Micron’s share price had multiplied by 16, exploding its market capitalization from $72 billion to $1.21 trillion, a truly fantastical ascent that saw it double its market cap from $500 billion to $1 trillion in just 48 trading days. The history of Micron, including a 98% plunge during the Dotcom Bust, serves as a stark reminder of the cyclical and often volatile nature of semiconductor investments.
Liquidity Shifts and Market Dynamics
Beyond individual stock performance, broader market liquidity dynamics are at play. The giga-IPO of SpaceX, valued at $1.77 trillion, and rumours of other mega-IPOs, are viewed as gigantic liquidity sucks. Furthermore, major tech companies like Alphabet, Meta, and Oracle are announcing plans to raise vast amounts of cash by selling new shares at their current stratospheric valuations. Alphabet plans to issue $80 billion in shares, Meta is rumoured to be selling “tens of billions,” and Oracle has already announced $20 billion. These moves reverse the liquidity flow that share buybacks had previously pumped into the market for years. While beneficial for companies to fund new projects like AI infrastructure and stimulate economic growth, this shift represents a significant change in market mechanics.
Nvidia (NVDA), another behemoth in the Trillion Dollar Club, also felt the pressure, dropping 6.2% today and 13.0% from its May 14 high, evaporating $740 billion in market value. The combined impact from these three semiconductor giants alone saw $1.43 trillion evaporate from portfolios. This highlights the inherent risks and cyclical nature of the semiconductor industry, where periods of high demand and prices often lead to massive capacity buildouts, eventually resulting in gluts and price collapses. The dip-buyers were not strong enough to halt the decline, leaving investors to ponder if Monday will bring a rebound or further consolidation in the market. Overall, the Nasdaq Composite saw a 4.2% drop, but remains only 5.4% down from its recent all-time high, suggesting that despite the significant moves in the semiconductor sector, the broader tech market is still in a robust position for companies to raise capital. For more insights into market trends, explore our related Finance news.
