Key Highlights

● AMD slipped to about $628.89, with no company-specific news found to explain the move.

● Susquehanna flagged a likely loss of CPU Market Share for Intel to AMD, but AMD's own shares didn't rally on the news.

● AMD relies heavily on TSMC to make its chips, which tied it into the day's Terafab-driven chip trading.

AMD slipped on Monday, Oct. 5, easing as news that TSMC could join Elon Musk's Terafab venture rippled through chip stocks, even as Nvidia powered to a record close.

A small step back

Advanced Micro Devices (NASDAQ:AMD) slipped on the Nasdaq-100 on Monday, trading at about $628.89 during the session. No company-specific news was found to explain the move.

Instead, AMD drifted lower as the chip sector digested a wave of news around Terafab, Elon Musk's Texas chip-manufacturing venture. Musk confirmed preliminary talks for Taiwan Semiconductor Manufacturing (NYSE:TSM) to join the project.

"Just discussions, but something may come of it," Musk said.

The Terafab ripple

Terafab is designed to Supply chips to Tesla (NASDAQ:TSLA), SpaceX (NASDAQ:SPCX) and xAI. Intel (NASDAQ:INTC) has been its only named manufacturing partner since April, and investors worried it could lose that exclusive role if TSMC comes on board. Intel fell on the news, while TSMC's US-listed shares rose near record highs.

AMD is not part of Terafab, but it relies heavily on TSMC to make its processors and AI chips. That close link meant AMD got pulled into the day's chip trading, even though the move was modest.

There was one potential bright spot for AMD in Monday's news. Susquehanna flagged a likely loss of CPU market share for Intel to AMD in the third quarter. That points to AMD continuing to gain ground in processors for PCs.

The stock did not rally on that report, though, suggesting investors were focused more on the broader chip picture than on share gains.

The semiconductor sector was mixed. Nvidia (NASDAQ:NVDA) rose to a record close and a Market Value of about $5.7 trillion, and Broadcom (NASDAQ:AVGO) also climbed. GlobalFoundries (NASDAQ:GFS) slid after BNP Paribas Exane downgraded it to Neutral, saying its growth drivers look "priced in." United Microelectronics (NYSE:UMC) tumbled with no news cited.

Hard-drive makers Western Digital (NASDAQ:WDC) and Seagate (NASDAQ:STX) rebounded after Bernstein called Friday's selloff "a storm in a teacup."

Records despite high yields

The broader market was strong. The Nasdaq-100 closed at a record 31,076.44, and the Nasdaq Composite jumped 286.45 points to a record 27,477.31. The S&P 500 added 51.23 points to 7,773.95, just shy of its summer record. The Dow rose 90.94 points to 51,267.90.

The 10-year Treasury Yield climbed to its highest level since 2002 after the ISM services prices-paid index hit 74.0, the highest since July 2022. Friday's weak jobs report, with payrolls up just 29,000, cut bets on an October Fed hike to roughly one in four or less.

Daniela Hathorn, senior market analyst at Capital.com, said: "growth stocks are rallying because Fed expectations have softened, while the Risk-Free Rate against which those valuations are judged remains exceptionally high."

Big-picture AI demand

AMD remains one of the main challengers to Nvidia in AI chips. Analysts expect third-quarter S&P 500 Earnings growth to be strong, largely driven by AI stocks, which keeps the spotlight on chipmakers heading into earnings season.

For AMD, Monday's dip was small, and it came without any change to the company's own outlook. The stock simply drifted with the chip group as investors sorted through the Terafab news.

What to watch

Investors will look to AMD's next Quarterly Report for updates on AI chip Demand and CPU share. Any developments at Terafab and TSMC could also move chip stocks.

Minutes from the Fed's September meeting are due Wednesday, Oct. 7 at 2 p.m. ET, and the Fed meets again Oct. 27 to 28.