ASML and Nvidia at the centre of a chip stock sell-off, inflation joy gives a lift to UK stocks and Whitbread profits decline amid UK challenges

“On a day when investors are dealing with the headache of a big sell-off in many tech stocks, the UK has come into its own and been a shining light on global markets,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 climbed 0.7% to 8,309 thanks to commodity producers taking centre stage, together with a healthy dose of gains from AstraZeneca, Rolls-Royce and HSBC.

“Providing back-up support was a group of stocks that stand to benefit from interest rate cuts in the UK.

“Housebuilders Taylor Wimpey and Persimmon, kitchens group Howden Joinery and DIY retailer Kingfisher were all in vogue after UK inflation hit a three-and-a-half year low, strengthening the argument for the Bank of England to cut the cost of borrowing next month.

“Investors are taking the view that financial pressures are easing on households and the public will soon be in a stronger position to spend money. This would be good for the economy and good for the army of stocks on the UK market that rely on consumers to make money.”

Semiconductor Stocks: ASML, Nvidia

“ASML’s warning has spooked investors holding anything linked to the semiconductor space. It was a blanket sell-off despite ASML saying AI-related demand remains strong, which suggests investors are worried that this warning is the sign of things to come on a broader basis.

“Names like Nvidia, ARM Holdings, Lam Research, Advanced Micro Devices and Applied Micro Devices all experienced a share price slump.

“Dutch semiconductor equipment maker ASML missed third quarter order expectations and lowered guidance for 2025, blaming weakness in demand outside of the AI space. That took the market by surprise and led to a bad day for Wall Street, with the tech-heavy Nasdaq index falling by 1%.

“The chips industry is essentially split into two – one part is focused on AI; the other is on ‘legacy’ areas like electronic devices and automotives.

“Companies like Apple have experienced tougher market conditions for smartphone sales and the electric vehicle industry is growing at a slower rate than expected, but this is old news and should have been baked into ASML’s forecasts. That’s why the market was so keen to know why ASML still disappointed on earnings.

“Two of ASML’s customers are experiencing their own issues, being Samsung and Intel, and that looks to have caused a trickle-down effect. ASML’s equipment is incredibly expensive and is not a casual purchase.

“Given ASML attributed its problem to factors outside of the AI space, one might be confused as to why Nvidia’s shares took a dive as it is at the heart of the artificial intelligence boom. Investors often fail to isolate certain stocks when something bad happens in a sector, leading to a blanket sell-off. However, pre-market trading doesn’t show a big rebound in Nvidia today, which suggests investors don’t feel confident to buy on the dip and that they’re asking tougher questions about whether all chip companies are about to hit a bump in the road.

“Geopolitics need to be factored into the equation. ASML has been caught up in restrictions by the Dutch and US governments on selling advanced machines into China, to stop Beijing from developing sophisticated AI systems. China has been buying older equipment from ASML and there are concerns that ASML might have seen a pull forward of sales into the country as Beijing stockpiles machines, thereby dampening future sales.

“Nvidia has also been clouded by geopolitical issues. There is talk that the US wants to impose export limits on high performance AI chips used in data centres to certain parts of the Middle East as well as China. In doing so, it wants to stop certain countries from having the capability to develop advanced AI models. Investors might view this as a headwind for Nvidia, curbing its potential to make money from pockets of the world. It introduces a negative factor to an investment story that has been almost universally good news for the past two years.”

Whitbread

“A softening of the UK hotels market has not been kind to Premier Inn-owner Whitbread. It has caused half-year profits to fall as occupancy rates slip and it makes less money per room.

“Whitbread is in it for long term and seeing up and down periods is perfectly normal. Tougher market conditions just happened to coincide with changes to its restaurant business, creating a double whammy of headwinds that has derailed its earnings growth.

“A lot of its restaurants are situated on site or next door to a Premier Inn and business hasn’t been as good lately from people who aren’t staying at its hotels. That’s led to a decision to rejig a lot of these eateries to either principally serve hotel guests, be turned into extra hotel rooms, or sold.

“The restructuring process is now underway and it’s caused a 7% decline overall in food and beverage sales during the half-year. This trend has worsened with a 14% decline reported over the past six weeks. Whitbread might argue this is simply a period of readjustment, but investors will be upset that it isn’t shifting more sausages and eggs.

“To Whitbread’s credit, it is still outperforming the mid-scale and economy hotel markets. That is one reason why investors haven’t punished the company today. The shares are up as it is doing its best in a tough environment.

“The stock will have also been lifted by ongoing momentum in Germany, albeit still only a small part of its business, together with bullish guidance for longer-term profits, dividends and share buybacks. The latter suggests that Whitbread is confident the work it is putting in today will result in big rewards down the line.

“Boosting the interim dividend by 6.7% to 36.4p and committing to buying back a further £100 million of shares by May 2025 also implies that management is confident about better times ahead and hasn’t been shaken by reporting a decline in profits. The buyback is smaller than the £150 million programme announced six months ago, but something is better than nothing in the eyes of investors.”

These articles are for information purposes only and are not a personal recommendation or advice.