Shares of Advanced Micro Devices (AMD) and Super Micro Computer led a sharp downturn in chip stocks on Wednesday. 

Both companies reported earnings that fell short of investor expectations despite optimism surrounding artificial intelligence (AI) technology.

AMD saw its shares plummet by nearly 10%, translating to a potential loss of more than $21 billion in market value. 

The company’s forecast of $4 billion in AI chip sales for 2024 failed to meet Wall Street’s lofty expectations, especially following the aggressive forecasts made by its larger rival, Nvidia, over the past year.

Super Micro Computer, which had experienced a remarkable 150% surge in its stock price this year, suffered a decline of over 16% after its third-quarter revenue missed estimates. Questions arose regarding the profitability of the company’s new line of servers, contributing to the negative sentiment surrounding the stock.

The Philadelphia Semiconductor index (SOX) tumbled by 3.5% in response to AMD and Super Micro Computer’s disappointing earnings reports. Nvidia, Micron Technology, and Marvell Technology also experienced notable declines, reflecting broader concerns within the chip sector.

Russell Hackmann, president of Hackmann Wealth Partners, attributed the sell-off to a shift towards risk-off sentiment in the market. He noted that investors are likely to react cautiously unless companies significantly exceed earnings expectations.

Executives at both AMD and Super Micro Computer cited supply constraints as a major challenge in meeting the demand for equipment powering the AI boom. While demand for AI-related products is increasing, supply chain limitations impede their ability to capitalize fully on this trend.

TD Cowen Analysts emphasized the supply chain strain as customers rush to adopt AMD’s MI300 AI chip. However, they noted that customer engagement remains strong, boding well for future product releases.

Despite the current challenges, several analysts remain optimistic about AMD’s prospects. Easing supply chain constraints could enable the company to expand its share of the AI chip market, potentially leading to significant revenue growth.

Analysts’ mixed reactions were reflected in price target adjustments, with some lowering their targets on AMD while others raised them. Super Micro Computer also saw a mix of price target increases and cuts following its earnings report.

As the market awaits quarterly reports from Apple suppliers Qualcomm and Qorvo, shares of both companies experienced declines ahead of the announcements. This underscores the cautious sentiment prevailing in the semiconductor industry amid ongoing supply chain disruptions and market volatility.