Chip stocks that notched record rallies in second quarter start Q3 with a dud

After an impressive performance in the second quarter, chip stocks have encountered significant setbacks as they entered the third quarter. Memory manufacturer Micron Technologies saw its shares plummet by 11%, resulting in a staggering $138 billion loss in market capitalization. Similarly, Intel's stock fell by 9%, while rival Advanced Micro Devices (AMD) dropped 7%. During the previous quarter, these companies thrived, collectively increasing their market value by $2 trillion as investors anticipated that the ongoing artificial intelligence boom would necessitate a heightened demand for both memory and central processors beyond just the graphics processors primarily provided by Nvidia. The VanEck Semiconductor ETF, which tracks the performance of semiconductor stocks, experienced a decline of over 5% on Wednesday, following its best quarter to date where it surged by 71% from April to June. Other notable decliners included semiconductor equipment firms such as Lam Research, KLA Corp., and Applied Materials, all of which had more than doubled in value in the second quarter but fell by at least 10% on this day. Adding to the market's woes was a report indicating that Meta, a leading purchaser of AI infrastructure, might begin renting out its surplus computing capacity. This development has sparked concerns that the supply of AI processing power could soon meet or exceed demand. Meta, categorized as one of the 'hyperscalers'—large internet companies investing significantly in AI data centers—saw its stock rise over 9% on Wednesday after a lackluster second quarter. Analysts from KeyBanc Capital Markets, who advocate for buying Meta shares, noted that this strategy could enhance Meta's presence in the enterprise market, potentially yielding quicker returns on investment. Richard Saperstein, Chief Investment Officer at Treasury Partners, expressed confidence in the hyperscalers, suggesting that the market is beginning to recognize their vital role in the AI sector. "Earnings are accelerating, yet multiples are compressing," Saperstein stated during an appearance on CNBC's "Closing Bell." He attributed this trend to the perception of hyperscalers as being capital-intensive and asset-heavy compared to their asset-light counterparts. Despite the recent market fluctuations, Micron's latest financial results indicate strong performance, with the company reporting a revenue increase of over four times in the last quarter and a significant rise in gross margin, jumping to 84.9% from 39% a year earlier.