shares nvidia (NVDA -5.60%)And the Advanced Micro Devices (AMD -8.12%)And the Qualcomm (QCOM -7.79%) They were all down significantly again Thursday, down 5.4%, 8.1% and 7.2%, respectively, as of 1:16 p.m. ET.
Obviously, the entire market was also down, and the tech sector in particular was the hardest hit. Two factors are likely driving the sell-off, including the rapid tightening of fiscal policy by central banks around the world, adding to investor fears of a recession.
In addition, an Nvidia insider sold a large amount of stock earlier this week. This could further dampen sentiments for the chipmaker and the industry as a whole.
Late Wednesday, Nvidia released a form submitted to the SEC showing that Company Director Mark Stevens sold 227,650 shares of stock over the course of June 13 and June 14 for a total of approximately $36 million. That, of course, isn’t what Nvidia investors want to see, especially with the stock already down 44% over the year and 54% below an all-time high.
However, before investors panic and run for the hills, they should note that even after these sales, Stevens still owns just over 3 million Nvidia shares worth nearly $500 million. As such, those sales amounted to less than 10% of his stake in the company. Insiders are selling stocks for all kinds of reasons, and it’s very likely that Stevens will raise money to pursue other investment opportunities, as many assets other than Nvidia stocks have become so cheap.
Of course, Thursday’s sale wasn’t just an Nvidia issue. The market has already been in deflation ever Since last Friday’s CPI report It showed inflation in May was higher than expected. Previously, some economists had thought inflation might have peaked in March, but the May report showed that inflation is spreading more in the broader services economy.
This prompted the Federal Reserve to raise the bar Federal funds rate by 75 basis points on Wednesday, the largest single increase to the benchmark interest rate since 1994. The Federal Reserve is trying to prevent inflation expectations from becoming unchecked, and raising interest rates to slow the economy is the main tool at its disposal.
However, there is a possibility that these price increases could cause a recession, and exacerbating concerns on that front could cause investors to sell pretty much everything, including semiconductor stocks that tend to be sensitive to economic growth. So while a sale of Nvidia might seem justified given its more than 40x high earnings valuation, even AMD and Qualcomm, i.e. sports P/E Ratios From 30 and 12.3 respectively, it was also trading lower.
All of these companies have posted excellent growth and profitability, and have been the best in their categories for a while. Nvidia is the leader in graphics processing units (GPUs), with AMD taking market share Intel Corporation (INTC -3.39%) In the CPU market, mobile modems are dominated by Qualcomm. The fear is that a broader economic recession could cause a slowdown or decrease in PC purchases, which will affect the three companies, and smartphones, which will affect Qualcomm in particular.
The current beacon of chip power is the data center market, which has been and remains strong. Companies are still moving their digital operations to the cloud en masse, and artificial intelligence and automation are helping companies cut costs. But if the economy enters a recession, even data center investment may slow.
At times like these, it is important that you stick to your long-term investment plan. Are these big companies stocks you want to own for many years? Also, how are each of these companies performed? Do they trade at reasonable valuations?
While their ratings may be somewhat questionable, each of these companies appears to be well positioned to thrive in their niche areas, and each is profitable, which not all tech companies can say. While the semiconductor industry has been cyclical in the past, it also seems to be getting stronger with each cycle, as more and more chips are being introduced into more and more devices over time. The semiconductor industry is expected to nearly double its annual revenue by 2030. This will be higher than the long-term average growth compared to other sectors.
Essentially, these sell-offs are a market-wide phenomenon rather than a company-specific phenomenon, and investors should see it as such. However, inflation and interest rates will be the allowance in the near term, and stock prices may remain volatile. But trying to guess what the market will do in the short term and on a daily basis is not a way to invest.
If you believe in the long-term prospects of these companies and invest with a time horizon of many years — or decades — you don’t have to worry, because nothing has really changed about their long-term prospects since yesterday or a week ago.