Chart of the Week: The chip stock split

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Good morning. The AI trade has been hammered recently, and semiconductor companies have been no exception. But investors aren’t abandoning chips altogether; instead, they’re just becoming more selective. Nvidia and TSMC have held up relatively well, while memory-chip makers SK Hynix and CXMT have suffered much steeper declines.

The divergence is especially striking in the memory chip sector. Memory is notoriously cyclical. But the latest sharp decline is striking because, on top of broader AI trade scepticism, investors have a new worry: competition from China-based memory-chip company CXMT. The company recently announced it made a key breakthrough in manufacturing cutting-edge DRam technology, potentially lowering costs. SK Hynix’s shares dropped roughly a fifth this week. Interestingly, CXMT’s also fell despite the announcement, reflecting fears that memory chip prices overall have peaked.

It’s hard to predict the top of any cycle, let alone that as fast-changing as the chip sector. While part of the sell-off has been because of well-founded AI spending concerns, the memory chip tumble may be overdone, a repeat of the DeepSeek-fuelled sell-off in January 2025. Adam Turnquist at LPL Financial says there’s “been a ‘sell now, ask questions later’ type of reaction. [CXMT] was the real first glimpse of competition coming into the memory space — we all knew it couldn’t last for ever. Whether it’s rational or not is the question. We don’t know who can buy and implement [CXMT’s chips] — and the restrictions from the US government, for example, there’s a lot of question marks there.”

So what separates the chipmakers that have fared better versus the ones who haven’t? Valuations are a factor; Broadcom’s price-to-earnings ratio of 42 is higher than that of Nvidia’s at 27 (it also did not help when CEO Hock Tan compared AI investing to a “casino”). Diversification also explains part, but not all of the story. American memory-chip maker Micron, which offers some geographic and business-line diversification, has fared better than some of its peers.

Investing in AI now requires a much more careful approach and the ability to distinguish between genuine threats and the latest turn in the news cycle.

Send us your thoughts: unhedged@ft.com.

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