On 17 October 2024, semiconductor-related stocks faced significant selling pressure globally. In the Tokyo stock market, where numerous prominent semiconductor equipment companies are concentrated, the Nikkei average fell by 730 points (2%) on 16 October, closing at 39,180 points. This downturn followed ASML Holding’s announcement of a downgraded earnings forecast, highlighting weak demand for semiconductors outside of artificial intelligence (AI) and acknowledging a slowdown in the global economy, including China. The ASML earnings impact semiconductor stocks significantly, with additional concerns raised regarding the implications of U.S.-led restrictions on China.
Market Reactions
The decline in semiconductor stock prices began in the European and American markets on 15 October and affected Asian markets the next day. Shares of Japan’s leading semiconductor manufacturing equipment firm, Tokyo Electron, dropped by as much as 10% from the previous day. Taiwan Semiconductor Manufacturing Company (TSMC), the largest semiconductor foundry globally, closed down 3%. This decline is partly due to the impact of ASML’s earnings on semiconductor stocks.
Triggering Factors
The catalyst for this market reaction was ASML’s early release of its financial results for the third quarter of 2024, covering July to September. The company reported a 50% decrease in order volume from the previous quarter. It also revised its revenue expectations downward for the fiscal year 2025, which ends in December. The ASML earnings impact semiconductor stocks, influencing market perceptions of global demand.
ASML’s performance serves as a key indicator of global IT and digital demand, making its results particularly significant for investors and highlighting how ASML earnings impact semiconductor stocks across all regions.
Implications for Semiconductor Manufacturing
Semiconductor manufacturers typically base their equipment investment plans on forecasts of global economic conditions and semiconductor demand. Equipment orders reflect these investment trends. ASML’s photolithography equipment is essential for semiconductor production. The company’s downward revision of its forecast has led to “somewhat negative sentiment” in the market, according to Shuhei Nakamura, an analyst at Goldman Sachs.
ASML’s financial report showed weak demand for semiconductors outside of generative AI. Some customers have been cautious about expanding production capacity. There is a strong demand for memory chips needed for AI development. However, the recovery in demand for smartphones and personal computers remains sluggish due to the broader economic slowdown, including in China.
Concerns Over U.S. Export Controls
The impact of U.S.-led export controls on Chinese semiconductor companies is back in focus. ASML reported that revenues from the Chinese market, which made up about 50% of its total in the third quarter of 2024, are expected to drop to around 20% next year.
The United States is actively engaging semiconductor equipment manufacturers from Japan and the Netherlands. It is tightening regulations to prevent Chinese companies from developing advanced semiconductors for AI.
In light of ongoing U.S. pressure, Chinese firms may be “over-procuring” manufacturing equipment not yet restricted. Masato Goto, Executive Officer at Japan’s SCREEN Holdings, noted this trend. If ASML’s findings indicate a conclusion to “Chinese special demand,” it could negatively affect Japanese companies’ performance.
Potential Policy Changes
According to Bloomberg, the U.S. government is reportedly discussing limiting the sales volumes of advanced AI semiconductors developed by companies like Nvidia across various countries. There are concerns that semiconductors purchased by Middle Eastern countries may end up in China. If such policies are implemented, they could suppress semiconductor demand.
Investor Sentiment
Investors have eagerly anticipated a sharp increase in demand for AI semiconductors, leading to a surge in related stock purchases. However, new risks regarding AI demand and U.S. restrictions on China could cause stock prices to decline. TSMC, heavily involved in advanced semiconductor foundry services, will announce its third-quarter performance on 17 October. Investors will closely monitor whether this change will alleviate market concerns fueled by the ASML earnings impact semiconductor stocks encounter.
