Semiconductor stocks like Nvidia (NVDA), Taiwan Semiconductor Manufacturing (TSM), and ASML (ASML) have been riding high this year on the wave of artificial intelligence. However, their momentum took a hit on Wednesday due to a variety of factors, including concerns over export restrictions and a broader tech stock rotation.
One key issue that emerged was the possibility of stricter export controls on semiconductor technology to China. The Biden administration is reportedly considering imposing more stringent restrictions on foreign-manufactured products that utilize even small amounts of American technology. This news spooked investors and led to a downturn in chip-related stocks.
For example, Nvidia’s sales to China as a percentage of total data center revenue dropped from 19% in fiscal year 2023 to 14% in fiscal year 2024, reflecting the impact of existing restrictions. ASML, a Netherlands-based chip equipment maker, saw the steepest decline on Wednesday, with its stock falling more than 12%. While the company beat second-quarter expectations, its third-quarter guidance fell short of analyst estimates, causing additional pressure on the stock.
Comments from former president Donald Trump also contributed to the downward trend in chip stocks. Trump suggested that Taiwan should pay the US for protection against Chinese aggression, leading to a more than 7% drop in TSMC shares. Many chipmakers, including Nvidia, rely on Taiwan for manufacturing, making them vulnerable to geopolitical tensions in the region.
Despite the downturn in chip-related stocks, companies like Intel and GlobalFoundries saw gains during the same session. These companies are expected to benefit from the Biden administration’s efforts to bring chip production back to the US, mitigating some of the risks posed by international trade tensions.
The decline in semiconductor stocks occurred amid a broader shift in the market, with investors rotating out of big-cap names into small-cap stocks. This rotation began after the latest inflation data raised optimism about the Federal Reserve cutting rates in September. As a result, the Russell 2000 outperformed the Nasdaq 100 over a five-session streak, highlighting the shifting dynamics in the market.
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