Chip stocks are coming under pressure from investors made nervous by hints of weakening demand during the first half of 2024. During the past week or so there have been warnings from industry bellwethers from Europe and the Far East, dampening enthusiasm just as earnings season gets going in earnest.

On 22 April Taiwan Semiconductor Manufacturing Company (TSM:NYSE), or simply TSMC, the world’s biggest contract chipmaker, delivered profit that beat first-quarter estimates and predicted second-quarter sales of up to 30% amid a wave of demand for the chips that power AI (artificial intelligence) applications.

Yet the $600 billion firm pulled back on expectations for growth in the overall chip sector and refrained from revising up its capital spending plans, as had been widely expected, triggering a sell-off of its shares. It capped a two-week drift that has seen the shares lose more than 12% since 11 April, the New York-listed stock closing at a fraction over $130.

It is a run that has coincided with a near-10% slump for ASML (ASML:AMS), the Dutch tech firm that dominates the market for lithography systems. These machines can cost hundreds of millions of dollars each and use light beams to help create microscopic circuitry, crucial for chip manufacturing.

ASML reported net sales of €5.29 billion (17 April), missing first quarter 2024 consensus pitched at €5.39 billion, and notably, net bookings for ASML’s equipment, a key indicator of future revenue. This stood at €3.61 billion for Q1, marking a 4% decrease year-on-year and a substantial drop from the previous quarter, significantly missing the consensus estimate of €4.63 billion.

The shortfall sounds worse than it is given the sheer size of single-kit sales. Even so, it poses an interesting question for sector investors – having largely gunned higher this year thanks to booming demand for the most advanced AI technology, have market expectations crept too high?

Readers may have a clearer picture by the end of next week, with chips stocks including Intel (INTC:NASDAQ), ON Semiconductor (ON:NASDAQ) and Advanced Micro Devices (AMD:NASDAQ) will have reported, as will Lam Research (LRCX:NASDAQ), another kit supplier crucial to the industry. Nvidia (NVDA:NASDAQ) will not report earnings until 22 May. 

In the meantime, the US SOX semiconductor index, which measures the world’s meaningful chips stocks, has hit the skids, falling around 15% since early March, having rallied 30% during the first 10 weeks of 2024. 

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