Global microchip stocks from Nvidia (NVDA:NASDAQ) to ASML (ASML:AMS) have been under stiff selling pressure after a Reuters report said that Taiwan’s TSMC (2330:TPE), the world’s largest contract chipmaker, had asked its suppliers to delay deliveries amid concerns over slowing demand.

The report follows a warning by TSMC during its second-quarter earnings (20 Jul) where chief executive CC Wei warned that a boom in artificial intelligence development was unlikely to offset a broader, cyclical slowdown in the industry.

TSMC’s Taiwan-listed shares drifted around 3% lower. Memory chip makers SK Hynix (000660:KS) and Samsung Electronics (005930:KS) lost more than 2% each.

According to the report, TSMC told investors to expect full-year sales to drop by as much as 10%, with capital expenditure increases contributing to tighter margins. It is also reported to have told its major advanced chip equipment supplier ASML to delay deliveries.

Goldman Sachs predicts flat revenue for TSMC in 2023, maintaining forecasts at $31.6 billion but the investment bank does predict a deeper drop in 2024 than previously anticipated. Goldman Sachs now estimates 2024 revenues of $25 billion, down from $28 billion previously.

A tougher 2024 will also hit wafer output, with Goldman Sachs saying that the most advanced 3nm (three nanometres) wafer capacity utilisation rate is expected to witness a significant drop as well.

TSMC is in the race with other contract manufacturers like Samsung, and US pair Globalfoundries (GFS:NASDAQ) and Intel (INTC:NASDAQ) to be the dominant supplier of chips, particularly for valuable clients like Nvidia, which has emerged as the chip technology leader in designing AI chips.

An emerging slowdown for microchips has taken some of the shine off an encouraging spell for the industry in the wake of chip architecture firm ARM’s (ARM:NASDAQ) successful IPO (initial public offering) this month when the shares popped 25% on day one of trading.

The listing was 12-times oversubscribed, according to reports, as investors chased a limited rough 10% share sale in the company that remains controlled by Japan’s Softbank (9984:TYO). That saw the stock listed at the top of its $47 to $51 range, valuing the business at approximately $54 billion.

Despite drifting back from intra-day $67 peaks, at $58 ARM shares remain nearly 14% above their IPO price at the time of writing. 

According to forecasts published by LSEG, ARM is expected to achieve $0.96 earnings per share for the year to March 2024, putting its shares on 60 times forward earnings.

ARM’s earnings per share is expected to hit $1.22 in the year to March 2025 and $1.44 the year after.

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