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Headlines
- Semiconductor Stocks Surge on Strong Economic Data
- Intel (NASDAQ:INTC) and TSMC Stocks Jump Amid Recession Relief
- ASML Holdings Gains as Chip Demand Rises
Shares of semiconductor leaders Taiwan Semiconductor Manufacturing (NYSE:TSM) (up 2.5%), Intel (up 4.2%), and ASML Holdings (up 5.1%) experienced a notable rally today.
There wasn't much company-specific news driving these gains. Intel had a minor setback, while TSMC had a slight positive update, yet Intel's stock outperformed TSMC's.
The sector-wide rally can be attributed to two significant macroeconomic data points released today, which alleviated fears of a recession and reinforced the notion of an economic soft landing.
First, the Commerce Department reported July U.S. retail sales figures, which were much higher than anticipated. Retail sales increased by 1% month-over-month in July, surpassing the 0.3% expected by economists and rebounding sharply from June's revised decline of 0.2%. Notably for these chip companies, spending on electronics rose by 1.6%, and auto sales bounced back by 3.6% after a cyberattack had limited sales in June. With each new model, automobiles are incorporating more semiconductors, which bodes well for the sector.
Additionally, the Labor Department released unemployment claims for the week ending Aug. 10, showing 227,000 claims, 7,000 lower than the previous week and below the estimated 235,000.
These data points collectively negated the weak job growth and rising unemployment rate observed in June. Previously, these data points had sparked fears that the Federal Reserve was behind in cutting the federal funds rate, potentially leading to a recession. Given that the semiconductor sector is cyclical, with long-term growth, these stocks are highly sensitive to economic data. As several companies like TSMC and ASML had already seen gains this year, they had pulled back due to recession fears. Today's rally reversed that trend.
It was surprising that Intel outperformed TSMC today, considering there was slightly negative news for Intel and potentially positive news for TSMC. According to the Financial Times, Softbank has apparently pulled out of a chipmaking agreement with Intel. Softbank had planned to design an artificial intelligence accelerator and had tapped Intel to produce it, as Intel is building out its third-party foundry ecosystem. However, Softbank reportedly backed out due to Intel's inability to meet volume and speed targets and is now in talks with TSMC to produce the chip.
Despite this, Intel's stock rose more than TSMC's. This could be due to valuation differences, as Intel now trades for less than book value, while TSMC has surged this year. Intel's primary revenue source remains PCs, which are more sensitive to macroeconomic data compared to AI and mobile chips, where TSMC excels. Intel needs the PC market to stay strong over the next year as it completes its foundry buildout, aiming to match TSMC's technology by the end of this year.
Both Intel and TSMC will need to acquire EUV lithography machines from ASML (NASDAQ:ASML), depending on demand. The positive economic signals today increased the likelihood of further investment in ASML's EUV machines by both companies.
In conclusion, the rally of Taiwan Semiconductor Manufacturing, Intel, and ASML Holdings can be attributed to positive macroeconomic data, easing recession fears, and sector-specific dynamics.
