UBS: Soft start to earnings season does not disrupt AI growth story October is the most volatile month in the history of tech stocks
UBS pointed out that October is the month with the highest volatility in technology stocks, with a historical volatility of 26%. Despite market concerns triggered by ASML's financial report, leading to a short-term decline in chip stocks, TSMC's optimistic performance has driven market recovery. UBS believes that the weak start of technology stocks will not affect the growth prospects of artificial intelligence, and predicts that geopolitical uncertainties and export restrictions will exacerbate market volatility
Following the sell-off triggered by news surrounding ASML (ASML.US) earlier this week, chip stocks entered a recovery mode as optimistic performance from TSMC (TSM.US) pushed the sector up. However, the weakness and volatility in tech stocks in October are not abnormal. On Thursday, the Nasdaq 100 index hit a new high, with the popular iShares Semiconductor ETF (SOXX.US) rising by 2%. The world's largest chip manufacturer, TSMC, surged by 12% after announcing better-than-expected third-quarter results and guidance.
Earlier this week, chip stocks were under pressure after ASML's financial report raised concerns about global chip demand. UBS pointed out this week that historically, October has been the most volatile month for tech stocks. In a recent Chief Information Officer report, UBS stated that the Nasdaq 100 index has had a realized volatility of 26% in October over the past 40 years, compared to an average volatility of 22% in other months.
UBS stated, "In addition to upcoming corporate earnings releases, we expect geopolitical uncertainties to continue to rise, and the risk of export restrictions will also exacerbate volatility."
On Tuesday, ASML's U.S.-listed stock fell by 16%, while other chip stocks including NVIDIA (NVDA.US), Broadcom (AVGO.US), and Intel (INTC.US) also saw significant declines. ASML's U.S.-listed stock dropped nearly 22% during the two-day plunge and slightly declined on Thursday.
On Tuesday, the Nasdaq 100 index fell by 1.4%, and the VanEck Semiconductor ETF index dropped by 5.2%, as ASML lowered the lower end of its 2025 net sales guidance range to 30-35 billion euros. Additionally, the Dutch computer chip equipment supplier's third-quarter bookings were 2.6 billion euros, below expectations.
While ASML sees artificial intelligence as a key driver for industry recovery, ASML CEO Christophe Fouquet stated during the company's earnings conference call, "We believe the recovery in other areas is slower than expected."
UBS stated that it does not believe the "weak start" in tech performance will disrupt the growth story of artificial intelligence. The bank said, "While investors are concerned about the sustainability of capital expenditures related to artificial intelligence, investment plans from AI supply chain companies indicate a more constructive outlook for the coming years, with some highlighting TSMC's rapid expansion in advanced AI packaging facilities."
UBS stated, "Without expressing an opinion on any specific company, we continue to believe in the strong growth prospects of AI semiconductors and closely monitor management's guidance on future demand."
ASML did mention this week that it holds a "more cautious view" on sales in China due to speculation surrounding export controls. Media reports this week indicated that U.S. officials have been negotiating restrictions on the sale of advanced AI chips from companies like NVIDIA to certain countries