Chip stocks have been on a wild ride this year, with companies like Nvidia (NVDA), Taiwan Semiconductor Manufacturing (TSM), and ASML (ASML) soaring due to investor excitement around the artificial intelligence boom. However, on Wednesday, this momentum hit a snag as all three stocks were down more than 5% in midday trading.
The decline was triggered by a variety of factors, including investor concerns about potential export restrictions and a broader rotation out of tech stocks. One key issue that emerged was the possibility of stricter regulations on the export of semiconductor technology to China. The Biden administration is reportedly considering implementing more severe controls on foreign-manufactured products that use even the smallest amount of American technology, which could impact companies like Nvidia and ASML.
ASML saw the most significant drop on Wednesday, falling as much as 11%. While the company exceeded second-quarter expectations, its third-quarter guidance fell short of consensus analyst estimates. Additionally, comments from former President Donald Trump, suggesting that Taiwan should pay the US for defense against Chinese aggression, further fueled the sell-off in chip stocks.
It’s essential to note that many chipmakers, including Nvidia, rely on Taiwan for manufacturing. The island is a major semiconductor hub with a substantial portion of the world’s most advanced chipmaking capacity. This dependency on Taiwan has raised concerns for investors, especially in light of Trump’s comments.
Amidst the downturn in chip stocks, companies like Intel (INTC) and GlobalFoundries (GFS) saw their shares rise. These companies stand to benefit from the Biden administration’s push to bring chip production back to the US, offering investors alternative opportunities in the semiconductor space.
The recent sell-off in chip stocks is part of a broader trend of investors rotating out of big-cap names into small-cap stocks. This shift began last week following positive inflation data that raised expectations of potential rate cuts by the Federal Reserve in September. The Russell 2000 outperformed large-cap stocks on the Nasdaq 100 for five consecutive days, highlighting the growing interest in small-cap opportunities.
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