Nvidia and Other Chip Stocks Had a Terrible September. Wall Street Remains Upbeat.

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Nvidia

stock finally lost steam in September after soaring for much of the year on hope that wide adoption of artificial intelligence will boost demand for the company’s semiconductors.

The price peaked on the last day of August at $493.55, up 238% from the start of the year. Since then, the shares (ticker: NVDA) have tumbled to as low as $410, before bouncing back to $430.89 as of Thursday’s close. That is nearly 13% below the high-water mark

Nvidia isn’t the only chip stock that had a bad September. The iShares Semiconductor ETF (

SOXX
), which owns a bundle of 35 chip maker stocks, is down by 7.6% this month.

Applied Materials

(AMAT) fell 9.5%,

Lam Research

(LRXY) lost almost 11%, and

Broadcom

(AVGO) is down by 9.8%. Among the 52 companies that MSCI categorizes as semiconductor makers, only Intel (INTC) has avoided a loss as September draws to a close.

The bad performance has more to do with the market, and less with how these semiconductor companies are doing. The

S&P 500
is down by 4.6% this month, and the technology names within the index are doing even worse, losing 7% so far in September.

Investors may be taking profits on semiconductor stocks after the group’s spectacular run this year.

Nvidia surprised Wall Street in August with blowout financial results. The company posted $13.5 billion in revenue for the quarter ended in July, nearly double the figure for the previous three months, beating the already bullish Wall Street consensus forecast by 20%. 

While the stock initially spiked, the gains soon waned. Management forecast sales of $16 billion for the third quarter, but investors appeared hesitant to push the stock higher until some of the growth materializes.

Expectations for consistently higher bond yields haven’t helped. Higher returns on risk-free government debt hurt demand for riskier bets like high-growth tech stocks. And higher rates reduce the current discounted value of future earnings—the main reason to pay up for shares of companies like Nvidia.

Some investors might also be worried about China, a major market for U.S. chip makers. The Chinese economy is facing mounting troubles since Beijing lifted Covid-19 restrictions last year, which could contribute to lower semiconductor demand from electronics manufacturers and data centers.

The tech Cold War between the two countries has also escalated. The Biden administration plans to restrict China’s access to American cloud-computing services from providers like

Amazon.com

(AMZN) and

Microsoft

(MSFT). Beijing has banned the use of iPhones for government employees, triggering concern about potential wider restrictions on U.S. tech products.

Despite the recent losses, Wall Street remains optimistic on semiconductor stocks. Price targets for Nvidia stock among the 54 analysts tracked by

FactSet

who cover the company range from $480 to $1,606—all higher than the current price of $431 per share.

Nvidia isn’t alone. All 52 semiconductor stocks Barron’s looked at have higher target prices than current levels. The implied gains over the next 12 months average 33%.

“Historically, these breakdowns have acted as brief respites that rejuvenate bullish trends,” wrote analysts at market analysis firm SentimenTrader, “A month later, the industry was higher 90% of the time.”

Write to Evie Liu at evie.liu@barrons.com