AMD cutting down production of its Ryzen 7000 series is a result of a painful downturn in the industry
This week we learned about problems AMD is facing in regards to its dismal results in sales of its flagship Ryzen 7000 “Zen 4” series. While some site the high price of the 7000 series in reality the problem might be far worse. Earlier in the year it was reported that technology stocks are expected to lose billions in capitalization this year alone.
Among the most affected companies are chip companies such as US chipmakers NVIDIA, Intel, Micro and AMD, which together lost hundreds of billions. These losses started making news earlier in the year, and by August news about a painful downturn in the industry raised more red flags. The rest of the tech sector also saw sharp declines in that period.
The main hurdle on the path of technology companies is the fear of a possible recession in the US economy. Likewise, the measures of the Federal Reserve are already beginning to play their part.
The four chip companies together have lost at least $110 billion dollars. Of these, NVIDIA bore the brunt of this bleeding. The manufacturer lost $89 billion in market capitalization in just five days in April, ouch… and today past 6 months.
The shares of this popular developer of artificial intelligence solutions and the game industry suffered a sharp drop on the stock market AMD has also seen its stock price drop by more than 33%, Intel 42% and Micron 19%, respectively. This is the latest in a string of negative news that has been pushing the semiconductor sector down.
The main factor in this recent hit to semiconductor makers could be investor fears of a possible recession. There was a clear signal recently with the inversion of the 2-year bond yield curve. This is an unusual event that usually indicates that the economy is in danger of recession. In any case, this situation of nervousness increases volatility in a sector that had already been behaving in this way to a great extent. Thus, bond investors are reorienting their capital towards two-year yields in the face of uncertainty.
This scenario affects both chip manufacturers and the entire technology industry and the stock market in general. The other issue related to this is the increase in inflation. The increase in the CPI has a direct impact on these companies, since consumers tend to buy technological equipment according to the health of economic growth.
For example, with an economy in good shape, purchases of appliances, computers and others increase. At the same time, when inflation rises, retail purchases are redirected towards basic necessities. In this way, purchases of technological equipment are postponed, causing companies to earn less income.
The other negative force affecting the tech industry comes directly from the monetary policies implemented by governments. In this sense, it is highlighted that the Federal Reserve is carrying out an aggressive rise in interest rates as a desperate attempt to stop the accelerated pace of the rise in the Consumer Price Index or CPI.
It should be remembered that the lowering of rates, along with the purchase of Treasury bonds and mortgage-backed assets, was part of a subsidy program to prevent income loss during the pandemic. However, the secondary effect is that the same purchase of debt would bring excess liquidity to the domestic market, causing unwanted increase in inflation.
Now that the Fed is raising rates, technology and semiconductor companies who want to borrowing money will face more difficult, as they will have to pay higher interest on their loans. With this, the future profits of these companies are seriously compromised.