What Happened?
A number of stocks fell in the afternoon session after reports revealed tech giant Oracle is generating lower-than-expected margins in its cloud business and losing money on Nvidia chip rentals.
The news caused Oracle's shares to tumble over 5% and sparked a wider tech sell-off, pulling the S&P 500 and Nasdaq down. Investors are growing concerned about the actual strength and profitability of artificial intelligence demand, which has been a primary driver of the market's recent record-breaking run. Oracle's struggles suggest that the massive capital investments required for AI, such as acquiring expensive chips, may not be translating into immediate or guaranteed profits. This has led to broader anxiety that the AI boom's financial returns might be less certain than previously anticipated, causing traders to pull back from the sector.
Compounding these worries was the ongoing U.S. government shutdown, in its second week, with no clear resolution in sight from Washington. This political uncertainty drove investors away from riskier assets and towards safe havens, a trend highlighted by gold hitting a record $4,000 per ounce for the first time.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Semiconductor Manufacturing company Applied Materials (NASDAQ: AMAT) fell 3.2%. Is now the time to buy Applied Materials? Access our full analysis report here, it’s free for active Edge members.
- Analog Semiconductors company NXP Semiconductors (NASDAQ: NXPI) fell 4.2%. Is now the time to buy NXP Semiconductors? Access our full analysis report here, it’s free for active Edge members.
- Analog Semiconductors company Vishay Intertechnology (NYSE: VSH) fell 4%. Is now the time to buy Vishay Intertechnology? Access our full analysis report here, it’s free for active Edge members.
- Processors and Graphics Chips company Allegro MicroSystems (NASDAQ: ALGM) fell 4%. Is now the time to buy Allegro MicroSystems? Access our full analysis report here, it’s free for active Edge members.
- Processors and Graphics Chips company Lattice Semiconductor (NASDAQ: LSCC) fell 3.2%. Is now the time to buy Lattice Semiconductor? Access our full analysis report here, it’s free for active Edge members.
Zooming In On NXP Semiconductors (NXPI)
NXP Semiconductors’s shares are quite volatile and have had 17 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 11 months ago when the stock dropped 9.4% on the news that the company reported weak third-quarter earnings.
Its revenue guidance for next quarter missed analysts' expectations, and its EBITDA fell short of Wall Street's estimates. The top line weakness was partly attributed to softness in the Industrial & IoT market. Also, CEO, Kurt Sievers, mentioned that the guidance for the fourth quarter reflects broader macro weakness, particularly in Europe and the Americas. Overall, this was a softer quarter and we've noticed that a number of other semis companies have struggled this quarter due to the macro.
NXP Semiconductors is up 6.8% since the beginning of the year, but at $220.18 per share, it is still trading 13.9% below its 52-week high of $255.58 from October 2024. Investors who bought $1,000 worth of NXP Semiconductors’s shares 5 years ago would now be looking at an investment worth $1,648.
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