AI Can't Paper Over Semiconductor Weakness

By Heather Burke, BLoomberg Markets Live analyst and reporter

A semiconductor company profit warning serves as a reminder that pockets of weakness remain in the tech industry beyond Apple.

Mobileye, which makes semiconductors for driver-assistance systems in vehicles, is plunging about 25% after its revenue outlook missed estimates. Demand for new technology in cars is high, but overall auto demand is slowing. Other companies that supply chips to the auto industry also dropped.

Nvidia and the fervor around artificial intelligence helped drive the best year for Philadelphia Semiconductor index since 2009, papering over slowdowns in areas such as industrial and networking chips. AI remains an area of growth potential: last month Broadcom said it expects AI growth to help counter a sales slowdown. But even the AI hype may have peaked. Nvidia was the best S&P 500 performer last year by far but its blowout earnings beat in November wasn’t enough to captivate traders.

Semiconductors and semiconductor equipment are projected to post the biggest y/y earnings-per-share growth of the three info tech subsectors in 4Q and 1Q24, according to Bloomberg Intelligence data. But, as we are seeing in the first week of the year, froth is seeping out of big tech, and chip companies won’t be spared, AI or not.