The world of Artificial Intelligence (AI) is rapidly evolving, with new innovations and advancements being made every day. However, the semiconductor industry that powers these technologies is facing some challenges. According to a recent report by UBS, the AI Semis basket, which includes companies such as Nvidia and AMD, is struggling amidst increased competition and economic uncertainty.

The report notes that the S&P 500 is down 20 basis points, with Nvidia being the main driver of the decline. Weaker retail sales and consumer confidence, along with an in-line PPI print, have further bolstered rate cut hopes. However, this has not been enough to stem the tide of selling pressure on AI Semis, which is down 4.1% amidst concerns of increased competitive pressures on GPU makers.

The emergence of Application-Specific Integrated Circuits (ASICs) has posed a significant threat to traditional GPU makers like Nvidia and AMD. ASICs are custom-designed chips that are tailored to specific tasks, such as machine learning or cryptocurrency mining. They offer superior performance and energy efficiency compared to traditional GPUs, which has led to increased competition in the market.

As a result, momentum is reversing gains after yesterday’s best day since 2022, with AI Semis down 5.4%. Rates Cut Winners, which include companies such as Visa and Mastercard, are extending recent strength after a brief pause yesterday. The market is now pricing an 80% chance of a December rate cut, which is higher than before the hawkish October FOMC.