NVIDIA fell 10% at one point! Why are chip stocks the hardest hit in September? Goldman Sachs explains like this

A month later, the US stock market suffered another bloodbath. On the first trading day of September, it opened with a plunge, with a sharp decline in tech stocks. The Nasdaq fell over 3% on Tuesday this week, with NVIDIA dropping by 10.1%. The semiconductor index Philadelphia Semiconductor Index plummeted nearly 7.8%, marking the largest drop since the "Black Monday" on August 5th a month ago, and the second largest drop this year. The chip stock ETF VanEck Semiconductor ETF (SMH) closed down by 7.5%, marking the largest drop since March 2020.

Wall Street News recently mentioned that for nearly a century, September has been the worst month for average stock returns in the US. Data since 2018 shows that tech stocks have also had a tough time in September.

From this perspective, it should be understandable why Goldman Sachs tech trader Peter Bartlett said that the semiconductor industry's sharp decline is "the most frequently asked question so far". Unfortunately, Bartlett admitted that there is currently no satisfactory explanation for why the start of September this year has been so poor. However, he mentioned that early feedback indicates that the following factors contributed to the significant drop on Tuesday:

• As investors return to the market after the US Labor Day holiday, the remaining impact on NVIDIA stock investments related to earnings. The main obstacles to the rise after NVIDIA's earnings announcement last week were:

• The second and third quarter earnings per share (EPS) guidance exceeded expectations by a smaller margin, with surprises not as high as in previous quarters, and gross margins normalizing;
• The holdings of some high-end buyers actually decreased after NVIDIA's earnings announcement;
• Positioning and technical aspects: NVIDIA fell by over 7% after the earnings announcement, marking the largest drop since April, setting the tone for a larger initial sell-off.

• Concerns about the negative seasonal effects on chip stocks, semiconductor stocks have fallen in September for four consecutive years, with an average monthly decline of 4.6%.
• It was reported that OpenAI is developing new self-developed AI chips, and xAI may have completed the construction of data centers. Reports on OpenAI chips may be positive for TSMC, but TSMC's US stock also fell sharply on Tuesday, dropping nearly 7% intraday.
• Entering a busy period for industry data, Broadcom will announce its earnings report this Thursday, Citi's TMT conference starts on Tuesday, and Goldman's Communacopia & Technology conference will be held next week, with NVIDIA CEO Jensen Huang speaking next Wednesday.

Bartlett pointed out that although the start of September was bad, client feedback did not indicate a high level of "pain" because their holding period for chip stocks has significantly decreased, which is the case for most investor types, especially hedge fundsGoldman Sachs' top TMT expert Peter Callahan pointed out on Monday that compared to the past two to three months, the controversy surrounding the AI theme has significantly increased.

Bartlett also mentioned that there has been a noticeable reversal in client fund outflows recently. The fund flow data from Goldman Sachs' trading department shows that active clients are selling semiconductors and buying software: "Although the fund flow in our department was not very busy at first, we can see a clear shift from semiconductors to software."

In addition, UBS' trading department mentioned another blue-chip tech stock, Tesla, stating that there were reports on Tuesday that Tesla plans to start producing a six-seater version of the Model Y in China by the end of next year. It is said that Tesla has asked suppliers to prepare for a double-digit increase in production capacity for the Model Y at its Shanghai factory. UBS pointed out that after Tesla released the Model Y in 2020, there was an internal project called Juniper to modify the model, which was supposed to launch a five-seater version, but the release date was postponed from the original plan for this year to early next year.

UBS' institutional holding data shows that hedge funds and long-only strategy investors have been shorting/reducing their positions in Tesla. This is consistent with UBS analyst Joe Spak's previous downgrade of Tesla to Underperform with a target price of $197. Spak's reason for the downgrade was that the market was too optimistic about Tesla's autonomous ride-hailing project.

Financial blog Zero Hedge commented that Tuesday's sharp drop was an example, showing that because everyone is on the same side of the trade, the market can pass on the pain to as many traders as possible