The semiconductor industry dominates global indices and grabs headlines. These components constitute the infrastructure on which the world of artificial intelligence (AI) will be built and, given the promise of a revolution in this technology deployed around the world, the “chiperas” have experienced a rally Completely historical. The paradigmatic case is Nvidia, which has soared by more than 850% since 2023. Although less spectacular, the Taiwanese giant TSMC has also stood out, soaring by 137%. However, while the sector is experiencing this situation around the world, the semiconductor industry of the Old Continent She lives stuck between stock market crashes and a general feeling of stagnation and crisis.
The stock market returns of European companies reflect this. ASML, the continent’s largest company in this sector, has reduced huge increases since the start of 2023, which were 100% until this summer and are now only 21%. Actually, Dutch company trades negatively in 2024 with a drop of 10.4%, according to its last close. However, it is one of the best stops in the area. Infineon is down 20% so far this year. AMS Osram, 62%, STMicroelectronics cedes 43%, BE Semiconductor, 23%, Technoprobe an additional 22.4%, Soitec, 56% and Melexis, 33%. Among the biggest, the only one bucking this trend is Sweden’s Mycronic, which has soared 44% so far in 2024.
The disparity is obvious between this group and companies like Nvidia. The reason is that artificial intelligence has experienced real growth, But it’s still only a small part of the semiconductor industry, although it gets almost all the attention. Chips for generative AI represent only a small portion of the total processor volume and represent only a small portion of manufacturing.
The ASML case
Although Nvidia is in the center of the market, its case is actually is not representativeand even less extrapolable to Europe. The great strength of the Californian firm is that processors for generative AI were sold at an average price of $40,000 in 2023, compared to $0.57 at which a billion standard chips were distributed the previous year, i.e. a difference of 70,000 times, according to one report. Deloitte study. The most advanced semiconductors increase total revenue, but they represent only 0.1% of total volume.
“The generative AI chips coming off the shelves are great news for the handful of companies that sell this type of chips or parts of these chips, but they do not contribute as much to the industry in general,” explains the report from the consultancy which analyzes the forecasts for 2024.
ASML, although a European giant, reflects this. Initial enthusiasm for AI needs to be based on sales and volumes, which is not so imminent across the industry. “While we continue to see significant developments and the great potential of AI, other market segments are taking longer to recover. It now seems that this recovery is more gradual than it seemed and that in 2025 there will also be a little more caution,” reassured Christophe Fouquet, CEO of this company, during the last presentation of the results. This resulted in a drop of 15.6% that day.
If we break down the Dutch company’s accounts, we see that its ultraviolet light (EUV) machines, those intended for the most sophisticated chips, represent the same percentage of sales as a year ago. In other words, they didn’t sell more thanks to AI. This segment accounted for 35% of revenue in the third quarter of last year and remains at the same percentage in the third quarter of 2024, the latest reported. Emphasis has been placed on this area since he was expected to lead the company’s growth. ASML sells chipmaking machines, and demand for simpler computer processors for computers or cars remains stagnant.
AI does not compensate for the engine crisis
It all depends on the nature of the semiconductors marketed. While companies like Nvidia are the ones offering models most oriented towards the future world of AI, the majority of European companies They are rather oriented towards another type of profile. A clear example is Infineon, which specializes in microdevices for the automotive sector, for industrial applications, energy sectors and digital security (such as mobile SIM cards).
In this sense, a good part of the semiconductor industry is totally exposed not to the future of AI, but to the present of the European industry and in particular the motor, which, in particular, is going through a really difficult time. According to the latest data from S&P Global, the index The PMI of the manufacturing sector of the old continent is at 46 points, that is to say in recession (50 points marks the growth threshold). This is particularly evident in the automotive sector (especially German) where low demand due to high interest rates, higher costs and greater competition from Chinese models is devastating these companies, forcing giants like Volkswagen to discuss a possible closure of several factories. , even if this has resulted in reductions for the moment.
Infineon’s latest results have clearly highlighted this problem. The company based in Munich made around 8.24 billion euros in 2023 solely thanks to the automotive sector, more than 50% of all its revenues. Now, in the last quarter of 2024, it has seen its sales to the automotive industry fall by around 4%. The drop is not just on the latter front, as digital security has also collapsed, by around 26%.
“Continued disruption of supply chains leading to excess inventory”
This was also seen at STMicroelectronics, whose revenue fell 26% in its latest results and profits fell 67%. During the first nine months of the year, revenues fell 23.2%, as the company itself explained, due to “continued weakness in the industrial market and declining sales in the automotive sector”. In short, while the world’s most successful companies have tied their fortunes and prices to AI hopes and are already seeing how that translates into higher revenues and profits (as is the case at Nvidia) , in Europe, many of these companies are linked to the demand of a secondary sector for reduced hours.
This latest round of bad feelings comes after a difficult period in 2023 and 2024 was, for analysts, the year that could mark the recovery. Deloitte explains in its latest sector report, published this summer, that last year was a “period of recession” globally, marked by supply problems and a decline in many of its segments. Beyond the engine, they emphasized that at that time, “PC and smartphone sales fell 14% and 2.5%, respectively.” A market for which they see a recovery but estimate that it will mainly focus on AI performance. In summary: “we forecast that in 2024 total sales will increase by 13%, to reach 588 billion dollars.” But there will be clear winners and losers.
From Fitch and pointing specifically to Europe, they comment that they hope that 2025 can mark the recovery, but they expect that this year will complete “two years of recession marked by bottlenecks in the chain of supply (which reduced margins) and geopolitical problems“. They agree with PwC, where they comment that they see several “headwinds” coming from 2023. They emphasize, of course, the great damage of inflation but also “the continued interruption of the chains of supply which caused excess stocks”. We will see if now, with the automobile crisis which is strongly emerging in Europe and particularly in Germany, the recovery can finally occur as planned at the end of the first half, hoping for a rebound from of 2025.
Regardless, analysts believe investors are undervaluing the sector and losses are excessive. In this sense, the consensus grants a revaluation potential of 38% to the European sector. All because they believe they will eventually avoid the level crossing through the desert in which he walks. Even though they estimate that the earnings per share of companies in the sector will decrease by 3% in 2024, they expect a strong potential of 20% for next year and an additional 27% for 2026. All this while the European industry is recovering.
