October 25, 2021

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Why Nvidia Investors Feel Nervous Today

What happened

For much of this year, the world has suffered from a global semiconductor shortage. So you’d think that investors would be happy to hear that companies are addressing the deficit by making more chips. But that’s not how things are working out for semiconductor manufacturer Nvidia (NASDAQ:NVDA) today. Its stock was down 2% as of 11:10 a.m. EDT on Friday.

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

CNBC reported today that Dutch machinist ASML Holding (NASDAQ:ASML), which manufacturers the machines that make the chips for so many of our high-tech gadgets, is predicting a boom in its business over the next four years, and even beyond.  

As ASML customers such as Intel (NASDAQ:INTC), Taiwan Semiconductor Manufacturing (NYSE:TSM), and Samsung race to expand their capacity to churn out chips, they’re spending freely at ASML. The company predicts revenue will surge as much as 69% to $28 billion by 2025, with gross margins rising past 54%.

This is great news for ASML and probably great news for chipmakers like Intel, TSMC, and Nvidia, too, because it only makes sense for them to be spending so much money buying machines from ASML if they see such strong demand for their chips.

Now what

But here’s what’s giving Nvidia investors a case of nerves today: All of this spending to increase capacity also means that the end of the chip shortage is approaching more rapidly than it otherwise might.

Elon Musk, for example, has predicted that the semiconductor shortage that was expected to last into 2023 will instead turn out to be only short term. Market analyst IDC predicts we could even begin seeing the shortage easing before 2021 is over, reaching balance by the middle of 2022 and flipping over to overcapacity in 2023.

And with ASML predicting 11% annual revenue growth through 2030 as chipmakers buy more and more machines, a new semiconductor glut could actually end up lasting longer than the shortage did.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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