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US chip stocks tumble after strongest year since 2009

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Explore the recent downturn in U.S. chip stocks, including AMD, Qualcomm, and Broadcom, impacting the PHLX index. Uncover insights amidst economic uncertainty and expert recommendations for navigating the chip market in 2024

On January 3, U.S. chip stocks faced a significant setback, contributing to the decline of Wall Street’s main semiconductor benchmark. The PHLX semiconductor index (.SOX) experienced a notable drop of 2.1%, primarily driven by declines in major players such as Advanced Micro Devices (AMD.O), Qualcomm (QCOM.O), and Broadcom (AVGO.O).

Since its record high close on December 27, the chip index has witnessed a nearly 7% decline, reflecting a shift from the remarkable performance it demonstrated in 2023. Last year, fueled by optimism surrounding artificial intelligence and expectations of Federal Reserve interest rate cuts, the PHLX surged by an impressive 65%, marking its strongest performance since 2009.

Investors have closely monitored the recent decline in semiconductor stocks, paralleling a broader downturn in the financial markets. As the Federal Reserve’s December meeting minutes loom on the horizon, investors seek clues about the central bank’s stance on interest rates, adding an element of uncertainty to the market.

Chip stocks, however, have been bolstered by expectations that the global demand downturn witnessed last year, leading to production cuts by memory chip makers, has largely bottomed out. Notably, Nvidia (NVDA.O), recognized as a key provider of AI-related chips, saw its stock market value triple in 2023 to a staggering $1.2 trillion, securing its position as Wall Street’s fifth most valuable company.

According to BofA Global Research analyst Vivek Arya, investors should consider exposure to cloud computing and the automotive industry. Arya recommends stocks such as Nvidia, Marvell Technology (MRVL.O), NXP Semiconductors (NXPI.O), and ON Semiconductor (ON.O) for potential gains. Additionally, Arya suggests exploring KLA Corp (KLAC.O) and Arm Holdings (O9Ty.F) for exposure to the growing complexity of chip designs.

In a separate analysis, Wells Fargo analyst Joe Quatrochi anticipates a subdued recovery for chip equipment sellers in 2024. Quatrochi identifies KLA and Applied Materials (AMAT.O) as top picks in the industry, providing insights for investors navigating the evolving landscape of the chip market.

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