Chip Stocks Fall While Energy For AI Moves Into Spotlight

Key Takeaways

• Chip Stocks Dropped Significantly Due To ASML’s Slower Recovery Warning
• Nuclear Energy Stocks Rallied, Driven By AI’s Growing Energy Needs
• Morgan Stanley Outperformed, While Banking Sector Faces Interest Income Challenges

Stocks fell on Tuesday led by a $420 billion drop in the global chip stocks. The S&P 500 fell by 0.8%. The Nasdaq Composite dropped 1%. Meantime the Dow Jones Industrial Average fell 0.8%; however, small cap stocks eked out a small gain, rising just under 0.2%.

The big story on Tuesday was a warning from chipmaker ASML of a slower than expected recovery in some areas of the chip sector. That stock dropped 16% while the sector fell 5% overall. Other notable chip stocks that saw sharp declines included Advanced Micro Devices, down 5%. Broadcom and Advanced Micro Devices each fell 3.4%, and Nvidia dropped 5%.

While chip makers fell, other stocks in the Artificial Intelligence (AI) ecosystem started garnering attention. Specifically, suppliers of nuclear energy rallied on the day. With substantial energy demands to power AI, companies are turning toward nuclear energy as a low-cost source. Google announced on Tuesday morning that they signed a deal with Kairos Power, a maker of small-scale nuclear reactors. While Kairos isn’t publicly traded, other stocks in the sector also rallied, including Oklo Inc. and Centrus Energy.

Some other stocks in the news today include Boeing. The company announced it will raise $10 billion by selling new shares of stock to plug an existing cash crunch. That stock is trading slightly lower in premarket. Meantime, Starbucks could percolate today following an upgrade from Morgan Stanley with a price target of $115. On Tuesday, Starbucks closed at $95.04.

Speaking of Morgan Stanley, that company posted earnings this morning that beat across the board. Net new assets came in at $63.9 billion, suggesting the company is taking market share. In premarket trading, shares of Morgan Stanley are indicated higher by 3%. We’ve already heard from other banking stocks such as Goldman Sachs, Citigroup and Bank of America. All three stocks were lower on Tuesday with net interest income being cited as a challenge for those three companies.

There aren’t a lot of household name companies reporting earnings today; however, after the close tomorrow, we’ll hear from Netflix. I’ll be listening for two things on their conference call. First, does the company plan to raise prices. There are several analysts calling for that. Second, does the company have any further plans to move into live sports programming. Next month the company will host the Mike Tyson fight and I’m very curious what kind of numbers that event does and whether or not it serves as a springboard into sports. For the year, shares of Netflix are up 45%.

Finally, every now and again I like to share what our customers at tastytrade are doing. Some of the companies where we’re seeing bullish activity include Visa, Meta and Amazon. Meantime, we’re seeing more bearish activity in Starbucks, Walmart and Intel. I think the bullish activity is likely a sign that our customers are optimistic about the upcoming holiday season, as well as optimism over continued strength in Meta. As for the bearish activity, I believe with Walmart it is attributable to shoppers trading up. I’ve spoken about people trading down when money gets tight, moving from retailers like Target to Walmart. I think right now, we’re seeing just the opposite as the economy is humming along. With respect to Intel, I think customers may see this company as having fallen too far to recover. Finally, the sentiment in Starbucks could be related to the company’s recent struggles prior to naming a new CEO.

For today, it is VIX expiration and anytime you get a VIX expiration, you can see some choppy trading. I’m also watching bonds. After having suffered nine consecutive down days, bonds may have bottomed out and interest rates may have topped out. I’m also watching some of these nuclear energy companies to see if they can continue building momentum. As always, I would stick with your investing plans and long-term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.