AI Jitters Hit TSMC’s Record Quarter & Penske Automotive Goes Private

John Crotteau (0:02)

Did Jensen Huang just ease the CoreWeave sell-off? We have the latest on the AI jitters, tanking chip stocks.

Emily Milliron (0:08)

And Penske Automotive to be taken private for $18 billion. We look at what it means for the industry at large.

John Crotteau (0:15)

For Thursday, October 15th, it's Brew Markets Daily. I'm John Crotteau.

Emily Milliron (0:17)

And I'm Emily Milliron. Let's get moving and groovin.

John Crotteau (0:28)

All right, Emily, it's great to have you in the studio as always later in the show. We're going to talk about a staffing company that's turning to AI screening to help their bottom line. But of course, the headlines for the past two days and again this morning were dominated by AI jitters, the tech sell-off and chipageddon.

Emily Milliron (0:46)

I made up that last one. I'm going to use that, John. That was good.

John Crotteau (0:49)

That's good enough. In a moment, we're going to get into some of the reasons for the downturn. And the Morning Brew newsletter team had fun today collecting all of the terms they saw related to the sell-off. Memory chips get drilled, they get hammered, they get sawed in half. It was a real home improvement.

Emily Milliron (1:04)

Yeah, everybody had a take on it. And this is even after earnings results came in overnight from TSMC, Taiwan Semiconductor Manufacturing Company.

It's the company that makes chips for NVIDIA, Apple, AMD and Broadcom. And the headline numbers were pretty strong. Revenue of $46.7 billion is up 16.2% from the previous quarter and above the high end of guidance. Net profit of $23.6 billion is up 69% from a year ago. And overall, the company had a record quarter and they beat Wall Street's estimates. And guess what? The stock dropped 5% this morning. So, it's not exactly what you might expect.

John Crotteau (1:45)

Yeah, I wouldn't have guessed that. Well, one soft spot was gross margin, 66.4% down from 67.7% last quarter if you're looking for some sort of red flag in there. TSMC says that the cost of ramping up its newest chip technology, 2 nanometer, did weigh on those numbers.

And it's these costs again that are worrying investors along with who is going to pay for these chips. This all came to a head because this week, CoreWeave, the cloud company that rents out NVIDIA-powered computing, because they borrow heavily to build out that computing power, including buying those NVIDIA chips that they rent out. And lenders are now demanding more interest from the company, creating conditions that will likely reduce CoreWeave's ability to get more financing in the future, if and when they need it. Also in this scenario, NVIDIA is CoreWeave's chip supplier and an investor in the company and on the hook by any computing capacity CoreWeave can't sell through 2032

So CoreWeave's money problem could become NVIDIA's problem.

Emily Milliron (2:49)

Right, yields on the AI debt have been rising. And the fear is that if these Neo Clouds can't get financing, they could cancel orders for chips, memory, networking and token uses, which would ripple through the entire AI trade. Yesterday, shares in Nebius fell 11%, Oracle dropped 9% and Taro Wolf and Hut 8 both fell over 10%.

John Crotteau (3:11)

So this was all the talk this morning. But then earlier today, NVIDIA CEO Jensen Wong weighed in probably trying to allay some concern telling Bloomberg, quote, CoreWeave's strength is improving every day and that he doesn't see a need for NVIDIA to step in and backstop the company, despite as we've been talking about the recent panic around that company's debt.

Emily Milliron (3:31)

Yeah, not everyone is leaning in on the sell off. Yesterday, Cathie Wood's ARK funds added over 188,000 shares across two ETFs on Wednesday, the same day that CoreWeave fell more than 15%.

John Crotteau (3:43)

Right, and she's not alone. One Deutsche Bank called this a dislocation and a buying opportunity. That analyst's argument was that most of CoreWeave's backlog is long term take or pay contracts. That means customers pay whether they use the capacity or not. And CoreWeave itself said Wednesday that its backlog should more than cover its debt payments, that was the big concern.

And Emily, like I said, as we record, CoreWeave's dip is no more. Shares were down 10% this morning and they're up 4% at this point.

Emily Milliron (4:14)

It is quite the ride. Well, there's still a second front of the sell-off. There's also memory. Over five days, shares in SK Hinex are down 26%, Samsung 22%, and Micron about 12%.

John Crotteau (4:27)

Right, and there are a few developments contributing to this memory sell-off, so let's go over them. One, the Chinese memory maker CXMT announced earlier this week it had made headway on new architecture that will increase memory density by packing more data into a small space. Although, analysts have questioned whether the company can scale that production that they're introducing. Also, SK Hinex is a company based in South Korea, and a Korean opinion newspaper posted a column warning of an oversupply of chips by 2029