Chip Stocks Slide as Apple Demand Surges

SPEAKER_1 (0:02)

Bloomberg Audio Studios, podcasts, radio, news. Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco.

Ed Ludlow (0:22)

This is Bloomberg Tech, coming up. Chipmakers set for their longest losing streak since 2008, leaving investors questioning the prospects for the AI trade. Plus shipping estimates for Apple's iPhone Duo slip into January, within minutes of the company opening pre-orders today. And the age of flying cars is here, kinda. Tesla reveals its long delayed roadster sports car, showcasing a prototype with air thrusters that flipped mid-air.

Well, when the chips are down, US semiconductor stocks falling again, putting the sector on track for an ape straight day of losses or matching a run since 2008, the longest losing streak since 2008 The Philadelphia Semiconductor Index has lost almost $2 trillion over those eight sessions, including today. And almost $2 trillion being wiped out is kind of something worth noting. Investors are confronting a growing list of concerns. What are those concerns? We start with the chip sell-off bringing in Bloomberg Tech, Ed Whitney's reporter, Ryan Blastelica. Go through what's happening, how broad the sell-off is, and then we'll get into some of the factors behind it.

Ryan Blastelica (1:25)

Hey, Ed. So this has been a very widespread sell-off. We've really seen weakness across the board within the semiconductor space. It really speaks to how there's been a real shift in sentiment toward the AI trade right now. We've seen a lot more concerns about the level of debt that's being used to finance this build-up. There's some concerns still about the ROI side of things. There's some concern about how long is this spending story going to remain intact, especially as, are we going to continue to see people lifting their capex in the coming years, which is what people have gotten accustomed to in terms of supporting all of this chipmaker growth. These are all sort of like questions that have really been percolating in the background almost since the start of the AI boom. And we've seen these sort of retreats and corrections and even bear markets before. This one, however, does seem pretty lengthy. It's pretty broad-based. It's pretty deep as far as the levels that we've seen companies coming off of their highs.

Ed Ludlow (2:21)

You know, there is the sort of macro events of the week. And when I'm reading the Bloomberg across our coverage, higher rates as it relates to both sort of like the impact evaluations, but this idea that the AI buildout is spending on chips, right? And the financing of those projects is also sensitive to a higher rate environment. So talk to me about that.

Ryan Blastelica (2:47)

Yeah, so higher rates means a higher cost to service all of this debt. Now, probably the major story of the week is CoreWeave. So many concerns about that company, its level of debt. We saw that the cost of insuring against default really spiked this past week. That's kind of at the epicenter of what is going on right now. And there's concerns about what if this snowballs and you have a company that is having difficulty servicing all this debt, rates keep rising, it becomes harder for them to do this build out, which requires chips. That makes it harder for them to generate revenue, which makes it harder for them to service their debt. It just goes on and on like that. That's really the concern right now. I'll say there's plenty of people who think that demand for AI and chips is still so strong that it's going to avert some kind of downward spiral. But this is really what people are concerned about right now. They're trying to assess how solid are some of these companies, what really is the outlook? Is AI demand going to be strong enough to help alleviate some of these worst case scenarios, especially in an environment that might be less favorable given higher rates and so forth?

Ed Ludlow (3:50)

Thank you very much. Taiwan is looking to build more of its AI supply chain here in the US. The government plans to help fund industrial parks for Taiwanese suppliers, starting with a complex in Texas that could cost as much as $4 billion. The goal is to bring more of the companies that supply NVIDIA, TSMC, other hardware makers, onto US soil, Taiwan planning more than one site across the country.

Okay, let's get back to these markets. Is this just a reset or a warning sign for the broader AI trade? David Banson is the founder and chief investment officer of the Banson Group, and he's been warning about the risk of a blow-off top in tech, arguing that valuations have become disconnected from the returns companies are actually generating specifically from AI. David, good morning to you. Welcome to the show. Eight straight days of selling in chips, an index that's still up 60% year-to-date. Is this the beginning of some sort of reckoning?