Shares of both Intel (INTC 5.84%) and Advanced Micro Devices (AMD 5.55%) sank in early trading Monday, and remain in the red at 1 p.m. EST -- down 3% and 3.2%, respectively.
The declines come in response to a Wall Street Journal report over the weekend, that Amazon.com and Microsoft are following Alphabet's and Apple's lead and designing computer chips custom made to perform better with their software and devices.
Moore's Law, says the Journal, is starting to lose relevance as Intel's and AMD's customers stop focusing entirely on faster processors (and those gains become harder to achieve), and seek to tweak their chip designs to instead put out less heat and lower power consumption. This "hunt for improved performance and lower costs" is "shifting the balance of power in the industry."
In particular, Alphabet, Amazon, and Microsoft are developing chips made to do artificial intelligence better, while Apple's M1 chip (and its expected successors) is designed to improve the performance of Apple devices.
Whatever their specific reasons, however, the upshot is that customers several times the size of the chipmakers in market capitalization now have the financial wherewithal to design bespoke chips in-house, and then employ contract chip makers such as Taiwan Semiconductor Manufacturing, among others, to do the actual chip-making for them. While to date, "the lost business for traditional chip makers has been modest," reports WSJ, it's where this trend is heading, and where it might end up, that has Intel and AMD investors feeling nervous.
In that regard, owners of AMD stock that trades at 130 times earnings would seem to have a whole lot more to lose than folks who own Intel shares that cost less than 10 times earnings.