Chip Stocks Slide 2.7% as Earnings Season Tests the AI Trade

A split market with chipmakers at the bottom

On Monday, October 12, chipmakers fell while much of the rest of the market held up. The Dow Jones Industrial Average gained about 0.4%. The S&P 500 finished roughly flat, and the Nasdaq Composite lost 0.44%. The Philadelphia Semiconductor Index fell 2.67% to 12,236.79, which made chips the weakest part of the session.15 The Nasdaq-100 dropped 0.71%.1513

The losses were broad. Nvidia slipped 1.29%, Broadcom 1.88% and AMD 2.28%. Intel fell 3.20%.15 Memory makers did worst: Micron lost 3.88% and SK Hynix's U.S.-listed shares fell 4.02%.15 Equipment makers and the largest foundry also declined. ASML's ADRs fell 1.69%, Applied Materials 1.87% and TSMC's ADRs 1.98%.15 Nvidia closed at $226.32.13

The day started more quietly. Before the open, Nvidia was up about 0.1%, while Intel and AMD were down 1% and 0.6%.16 By the close, every major chip name was lower. Small early moves turned into a sector-wide sell-off once the regular session began. The money did not leave tech altogether, though. Meta rose 3.38%, Apple 1.29% and Microsoft 1.14%.15 Investors sold the companies that supply AI hardware and kept buying some of the big platforms that pay for it.

Three pressures at once

The coverage points to three causes, and they add up to more than ordinary profit-taking.

Doubts about AI revenue. The iShares Semiconductor ETF (SOXX) lost about 5% in the prior week, its worst week in a month.14 That drop followed reports that OpenAI's annualized revenue was about $50 billion at the end of September. Figures circulating in the market had put it at $68 billion to $70 billion.14 The gap matters because chip valuations assume that AI developers will earn enough to justify spending heavily on data centers and processors.14 Nvidia, AMD, Broadcom and Micron were all hit in that sell-off.16

This worry is not new. On September 28, chip stocks fell after reports that OpenAI had suddenly paused training and testing of its most advanced model. Arm dropped more than 7% and Qualcomm nearly 7% that day.20 Two OpenAI headlines in two weeks have shown how much the chip trade depends on news from a single company.

Competition in memory. Monday added a problem specific to memory chips. China's ChangXin Memory Technologies (CXMT) announced progress in advanced DRAM, which weighed on Micron.12 That raises the prospect of a new competitor in a market dominated by Micron, SK Hynix and Samsung.14 An ETF focused on DRAM fell 7.4% last week, its worst stretch in nearly three months.16 Memory stocks have had a big year. Micron recently traded above $1,000 a share.17 It had guided fiscal fourth-quarter revenue to about $50 billion with gross margins near 86%.17 At those levels, even an early sign of new supply can trigger sharp selling.

Valuation and macro data. Some analysts described the 2.67% drop in the semiconductor index as concentrated profit-taking after gains built on recovery expectations.15 Investors are also waiting for Wednesday's consumer price index report. Analysts expect S&P 500 earnings to rise about 25% from a year earlier in the third quarter.13 A high earnings bar plus an inflation reading that could shift interest-rate expectations gives investors reason to reduce exposure to expensive stocks.

Where the coverage differs

The reports agree on what happened but explain it differently. Some treat Monday mainly as valuation-driven profit-taking and a choice between growth and value stocks.15 Others stress specific shocks: the OpenAI revenue gap and CXMT's DRAM progress.14 A third account presents it as a test of whether Nvidia and its peers can issue guidance that supports current valuations, or whether investors will keep moving out of mega-cap tech.13

The best explanation combines them. Profit-taking alone would not account for memory stocks falling nearly twice as much as Nvidia. Pure fear about AI demand would not account for gains at Meta and Microsoft, which are among the biggest AI spenders. The pattern looks more like a rotation within the AI trade. Investors are questioning the hardware suppliers whose earnings depend most on a capital-spending cycle continuing. The memory makers, now facing a possible new rival, are the clearest example.

The raw headline about the session mentions Nvidia, but Nvidia is not reporting this week. Its next report is expected around November 18, after the close.2 The company now reports on a separate calendar, about three weeks after most of the industry.1 The near-term tests are ASML on October 14 and TSMC on October 15.13 Investors are treating both as early indicators for Nvidia.

ASML and TSMC go first

ASML is expected to report third-quarter revenue of about $13.13 billion. TipRanks says that would be a 49.5% increase; Stocktwits, citing Koyfin, says 56%.34 Analysts expect earnings near $11.97 a share, nearly double the $6.38 from a year earlier.3 The stock is up about 69.7% this year.3 Investors will look closely at orders, the outlook for 2027, export restrictions and demand from China.4 Equipment orders usually lead new factory capacity by 12 to 18 months, so ASML's order book is one of the better signs of how long the cycle will last.1

TSMC has already said third-quarter revenue rose about 50% from a year earlier, so the reported sales figure is unlikely to move the stock.10 Its July guidance called for third-quarter revenue of $44.6 billion to $45.8 billion and a gross margin of 65% to 67%.1 Wall Street expects adjusted earnings near $4.40 per ADR, up about 54% from a year earlier.3 Investors will focus on three things. The first is growth in the high-performance computing segment, which was about two-thirds of revenue in the second quarter.10 The second is how much revenue comes from the 3nm process, which makes Nvidia's Vera Rubin platform.10 The third is whether TSMC raises its full-year outlook again. It moved that outlook from mid-to-high-20% growth in January to at least 40% by July.10

One risk stands out. Merely repeating its guidance while raising capital spending could hurt TSMC's stock and pull the rest of the sector down with it.10 Others have noted that investors want to see whether customer demand, including from Nvidia, can outweigh rising production costs.4 Expectations are already high. Bank of America raised its TSMC price target to $620 from $590 ahead of the report.5 TSMC's ADRs closed at $444.35 on Monday.5

Why Nvidia's August pattern matters

Nvidia's last report shows how much one strong quarter can move the sector. In late August the company beat estimates with earnings of $2.22 a share against expectations of $2.09. Its stock rose more than 7% before the open.19 That lifted chip stocks around the world: the VanEck Semiconductor ETF gained about 3%, Broadcom 4.5%, and ASML and STMicroelectronics both rose in Europe.11 Revenue for that quarter was $96.2 billion.1

Since then, Nvidia has tried to support its stock. On September 28 it added $150 billion to its buyback authorization, bringing the total program to $235 billion. Its shares rose more than 3% that day while the rest of the sector fell.20 An authorization only allows the company to buy shares; it does not commit it to buy any. The new amount is about seven times Nvidia's latest quarterly free cash flow.17 Nvidia has held up better than the memory makers in both recent sell-offs, so the buyback may be helping. It has not protected the stock completely: Nvidia still fell 1.3% on Monday.13

Outlook

This does not look like the end of the AI chip cycle. Expected earnings growth is still very strong, and the ASML and TSMC reports this week could ease concerns quickly.313 What has changed is how investors price risk. Doubts about AI developers' revenue and new competition in memory have shown that the supply chain is not equally safe at every point. Companies that depend most on demand staying tight are being sold first.

If ASML reports strong orders for 2027 and TSMC raises its full-year outlook without a large increase in capital spending, Monday's drop will probably look like a pullback in an ongoing rally. If either company is cautious, the four weeks before Nvidia reports could be difficult for chip stocks. Memory makers are the most exposed. Beyond the headline numbers, investors will be listening to how each company describes demand from AI customers.