The Australian sharemarket jumped around last week, before closing down 1.8%, falling to a four week low. The RBA’s decision to increase rates by 0.25% on Tuesday buoyed banks and cyclical sectors. Midweek strength was led by miners and energy, as oil firmed on Iran tensions and critical minerals headlines. However, gains were wiped out on Friday, after the market tumbled the most it has since “liberation day”. Investors sold off uranium and technology names as the AI energy thematic theme started wearing off, while global AI volatility resurfaced. Stock specific detractor was Web Travel (-35.9%), on news that its Spanish subsidiary would be audited by the nation’s tax authority.
US sharemarkets also closed lower last week. Negative sentiment towards AI was the biggest driver of underperformance, after Anthropic’s Claude new AI release on Tuesday, which claims to be able to replicate the work of specialist legal software. Sharemarkets dumped software and technology stocks, who often have large capital expenditure and switching costs to be able to pull off something like this. This was confirmed, after Amazon reported capital expenditure above estimates, causing its share price to sink 12.1%. However, other areas of the market were able to soften the losses, as investors rotated into more cyclical sectors. The Consumer Staples (6.0%), Industrials (4.7%) and Materials (3.5%) sectors outperformed.
European sharemarkets advanced last week, as the STOXX Europe 600 added 1.0%, despite the AI disruption. Broader areas of the markets were able to outperform, as the Communications (6.2%), Materials (4.7%) and Energy (3.1%) sectors all increased. London based pharmaceutical company, GSK, was a stock specific standout, surging 17.1%, thanks to the EU signing off on broader use of one of the company’s medications, designed to treat chronic obstructive pulmonary disease. In policy news both the European and England central banks kept policy steady but sounded dovish. Eurozone inflation dipped to 1.7%, while Bank of England downgraded inflation and growth outlooks, which lifted expectations for a rate cut in March to ~60%.
Stock & sector Movements
The Ongoing Chip Squeeze
Semiconductors, less formally known as chips, are back in short supply, and this time it’s not being driven by COVID-related supply chain issues, but rather artificial intelligence (AI).
What’s caught our eye recently is just how acute the chip shortage has become, especially now in memory chips. From smartphone makers like Apple to cloud giants like Microsoft, the scramble for silicon is disrupting the world.
TSMC, the world’s largest contract chipmaker, is warning key customers it can’t meet demand at its most advanced nodes. That’s creating bottlenecks not just for AI-focused firms but also consumer-facing players like Apple, which is struggling to secure enough advanced chips for its new iPhones.
TSMC has been conservative, waiting to invest in production until it was sure AI was here to stay. It's safe to say it is, based on demand and progress we’ve seen. TSMC admitted they underestimated AI and is now ramping up investment. The issue is it can take years for new supply to come online, meaning customers are likely to remain starved. This has paved the way for Intel’s return to glory, despite troubles faced in recent years. But even Intel’s investment in production will take time and a lot of money, so change won’t happen overnight. Ironically, this delayed chip investment could impact the monetisation of AI, increasing the probability of the often publicised ‘AI bubble’.
Memory chipmakers like Samsung, SK Hynix and Micron are enjoying the upside, posting strong profits as prices for memory surge. Samsung expects revenue from its high-bandwidth memory chips to triple this year, with orders locked in well ahead of time. Demand coming from the AI infrastructure build out is so strong that Micron has abandoned Crucial, its consumer facing business, choosing to instead focus on filling supply for its enterprise customers.
What this means for investors
For clients, we see three things worth noting:
•This shortage will take time to resolve. Some predict it could last through 2027. In the meantime, expect continued pricing pressure on tech manufacturers and electrical goods prices.
•Not all companies are affected equally. Chipmakers are benefiting. Consumer electronics firms are facing cost headwinds and tighter margins.
•AI is now a real infrastructure story. It’s driving investment, competition and supply chain shifts, not just headlines.
Locally this week, household spending figures will be released, providing key insights into consumer spending. In addition, lending indicators are expected to show the value of new home loans to increase by 6%.
Overseas, the US will release their latest retail sales and employment data, which is expected to see 50,000 jobs added in January. The all important CPI figure is scheduled for Friday, with experts tipping an annual dip from 2.6% to 2.5%. Elsewhere, China’s inflation data is expected to fall from 0.8% to 0.3%.