You know stocks are getting pricey when investors get jumpy about even the slightest change in earnings expectations. This can be seen in the sharp moves in AI-related stocks in recent weeks, especially the sector’s top picks such as Nvidia, ASML, Arm and US and Asian chipmakers. But these need not move in step with each other
Take for example, ASML. The Dutch chip equipment maker’s weaker-than-expected orders sparked extreme volatility in AI-related stocks around the world. The logic seemed to be: since new orders for machines made by the world’s largest advanced chip equipment maker fell short of market expectations, the outlook for artificial intelligence chip growth must also be deteriorating.
Indeed, conditions are ripe for a correction. The AI stock market boom has been pricing in too much too fast. The hype has meant disproportionate gains for even some stocks that are unlikely to become significant beneficiaries of AI-driven growth. Meanwhile, the sector remains heavily exposed to geopolitical risk. China is a key market for most chip-related companies including Nvidia and ASML. For the latter, it is its biggest market, accounting for nearly half its system sales in the first quarter