Why Intel, Arm, Broadcom, and Other Artificial Intelligence (AI) Shares Dropped Today

Artificial intelligence (AI) stocks fell on Monday due to geopolitical risk factors. Intelhis (NASDAQ: INTC), Broadcomhis (NASDAQ: AVGO)and Armhis (NASDAQ: ARM) Share prices ended the daily session down 2%, 4.1% and 5%, respectively, according to data from S&P Global Market Intelligence. Meanwhile, Nvidia ended the day down 2.3% and Micron decreased by 3.8%.

Semiconductor investors were hit today by bearish news on several geopolitical fronts. China is getting around US AI tech restrictions, but that wasn’t the most surprising story of the day.

A Chinese military jet entered Japanese airspace this morning — an unprecedented violation that follows several incidents involving Chinese aircraft in the Philippines that have raised concerns. Adding another source of geopolitical uncertainty, Poland said it believed a Russian plane had entered its airspace.

Geopolitical risk was in the spotlight on Monday

Aiming to halt the technological progress of its main geopolitical rival, the US has introduced restrictions to prevent the sale of advanced chips and semiconductor manufacturing equipment to China. But The Wall Street Journal published a report this morning stating that China used third-party AI processing services to circumvent these export bans.

Leadership in the AI ​​space has become a key economic and national security priority for both the US and China. The quest for space supremacy could push tensions between the rivals further.

Recent news of Chinese incursions into Japan and the Philippines raises some immediate territorial concerns, but the larger specter that is highlighted for investors is the possibility of China invading Taiwan at some point in the not-too-distant future. While many companies design their own AI chips and processors, Taiwan Semiconductor Manufacturing is currently responsible for manufacturing about 80% of the semiconductors used for advanced AI applications. If TSMC’s chip production were disrupted or seized, the impact on supply chains and the wider global economy would likely be disastrous. It could also be the inciting incident to spread a wider conflict.

In addition to developments related to China, investors also had other geopolitical risk factors to consider. Poland reported that a Russian aircraft had entered its airspace en route to Ukraine, raising concerns that conflict could escalate in the region. News also emerged that a security scare at a NATO military base in Germany was triggered last week by an intelligence report that Russia was preparing to sabotage the base using drones.

The story continues

What’s Next for Intel, Broadcom, Arm, and Other AI Chip Stocks?

China news has been a recurring bearish catalyst for chip stocks over the past year, and there’s a good chance that geopolitical risk will continue to be one of the main drivers of near-term volatility. In particular, companies that rely heavily on TSMC for chipmaking could see huge bearish moves if the perceived likelihood of conflict in Asia increases. This dynamic could explain why Intel has seen a smaller pullback than Broadcom, Arm and other AI stocks today.

Even though Intel uses TSMC to produce some of its most advanced chips, it has substantial manufacturing resources of its own. Intel is currently the third largest chipmaker in the world, trailing only market leader Taiwan and Samsung. With concerns that China could encroach on Taiwan growing, the US company is investing heavily to improve its manufacturing capabilities and position itself as an alternative to TSMC. But even Intel is unlikely to get away with more big sales if China moves to take control of Taiwan and TSMC.

However, while geopolitical risk factors will continue to weigh on valuations of semiconductor companies and other AI players, the next big catalyst for market movement is likely much closer on the horizon. Nvidia is scheduled to release its second-quarter results after the market closes on Wednesday, which is poised to be one of the most influential financial reports of 2024.

Nvidia’s business performance and stock moves have frequently affected trading in other AI stocks this year, and there’s a good chance the company’s upcoming earnings report will have knock-on effects for other AI players. If the AI ​​leader’s quarterly results and forward guidance manage to beat Wall Street expectations, other AI stocks could enjoy significant valuation increases. But expectations are high on the report, and even the slightest of shortfalls could cause substantial volatility.

Should you invest $1,000 in Intel right now?

Before buying Intel stock, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $792,725!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns starting August 26, 2024

Keith Noonan holds positions in Micron Technology. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Why Intel, Arm, Broadcom, and Other Artificial Intelligence (AI) Stocks Fell Today was originally published by The Motley Fool