Chip stocks rally despite an ominous forecast, as U.S. semiconductor funding bill advances in Senate

Funding appeared to be in danger in late June when Senate Republican leader Mitch McConnell threatened to derail the bill if Democrats revived their stalled climate and social policy package. Uncertainty over the funding had grown so much that Intel Corp. INTC, +0.85%, in late June, had delayed groundbreaking on its new plant in Ohio.

The PHLX Semiconductor Index SOX, +2.49% outpaced broader market gains Wednesday, finishing up 2.5%, while the S&P 500 index SPX, +0.59% advanced 0.6%. For the year, the SOX index is still down 27%, compared with a 17% decline in the S&P 500.

The advance in chip stocks comes despite a reduced forecast from ASML Holding NV ASML, +3.22% ASML, +3.38% early Wednesday. The Netherlands-based chip-equipment maker said it expects about 10% revenue growth for the year, down from a forecast of 20% growth in its previous earnings report. In 2021, the company brought in 18.6 billion euros in sales.

“Some customers are indicating signs of slowing demand in certain consumer-driven market segments, yet we still see strong demand for our systems, driven by global megatrends in automotive, high-performance computing, and green energy transition,” ASML Chief Executive Peter Wennink said in a statement.

Yellow flags have been flying in the chip sector for months, with analysts warning that the record sales of recent years could lead to a supply glut after the pandemic-influenced shortage of semiconductors eased. Concerns have increased since Micron Technology Inc. MU, +1.44% forecast quarterly sales more than $1.5 billion lower than Wall Street estimates, advancing the argument that chip customers may have double- or triple-ordered products during the pandemic.

Read: Pessimism on chip stocks is hitting a new high, and the money seems to be flowing toward software

Last quarter, ASML said that demand was far outstripping its capacity, an indication that the global chip shortage was still firmly in place. The CEO said the reduced sales forecast was mostly due to an increased number of “fast shipments” this year, which will delay revenue recognition into 2023 by about 2.8 billion euros.

Leading the chip rally were shares of Nvidia Corp. NVDA, +4.80%, with a 4.8% gain, and shares of Applied Materials Inc. AMAT, +4.07%, Advanced Micro Devices Inc. AMD, +4.13%, Lam Research Corp. LRCX, +4.06%, which all finished up 4.1%.