(Bloomberg) — Chip stock investors face a new test after a tepid outlook from key equipment supplier ASML Holding NV sparked a global slide in the sector.
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Combined market value losses for an index of U.S.-listed chipmakers plus the largest Asian stocks reached more than $420 billion.
The warning from Netherlands-based ASML halted a rally that had taken a gauge of U.S.-traded stocks to a three-month high. Nvidia Corp. sank nearly 5% on Tuesday, after hitting a record close earlier this week on less concern about production problems with its new artificial intelligence product.
ASML shares fell to their biggest drop since 1998 in Europe after the maker of the world’s most advanced chip-making machines cut its outlook on slowness in areas beyond AI. It lowered the top end of its guidance range for total net sales by 2025 to 35 billion euros ($38 billion) from 40 billion euros. ASML extended its losses on Wednesday, falling 4.2%.
While a weak 2025 forecast was expected from ASML given the slowdown in non-AI applications as well as Intel Corp.’s reduced spending and other factors, “the magnitude of the correction is a negative surprise” said Atif Malik, an analyst at Citigroup Inc., wrote in a note.
The situation was aggravated by the lack of color, as the results were published by mistake a day ahead of schedule. Shareholders are used to the well-oiled machinery of investor relations to explain how the business works and the timing of orders, reservations, revenues and shipments. Investors will focus on the post-earnings call scheduled for 15:00 CET.
Losses in Asian trading on Wednesday were led by ASML peers, including Tokyo Electron Ltd., which fell as much as 10%. Shares of top foundry Taiwan Semiconductor Manufacturing Co., which reports results Thursday, fell as much as 3.3%.
Despite the market reaction, some investors see ASML’s problems as possibly specific to the Dutch company. Demand for AI remains dynamic and Beijing’s efforts to revive its economy are seen as helping a broader recovery.
“We believe that chipmakers are strategically reducing ASML orders, and this is negatively affecting ASML’s earnings,” said Jung In Yun, chief executive of Fibonacci Asset Management Global Pte. Ltd. It is unclear whether the driver is cost cutting or other strategic reasons, he said, also noting that China’s stimulus may spur a rebound in chip demand.
–With help from Subrat Patnaik and Neil Campling.
(Adds stock movement in paragraph four, details on earnings call.)
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