Chip Stocks Shed $480bn On China Trade Fears

Wall Street’s semiconductor index lost over $480bn in stock market value on Wednesday and headed for its worst session since 2022 after a report said Washington was mulling tighter curbs on exports of advanced semiconductor technology to China.

Remarks from Republican presidential nominee Donald Trump saying key production hub Taiwan should pay the United States for its defence deepened selling in chip stocks.

The US has told allies it is considering using the most severe trade curbs available if companies continue giving Beijing access to advanced semiconductor technology, Bloomberg News reported on Tuesday.

US-listed shares of Dutch chipmaking equipment provider ASML Holding slumped 11 percent following the report even though it beat second-quarter profit estimates.

AI heavyweight Nvidia fell almost 7 percent, losing more than $200bn in market capitalisation.

Smaller rival AMD dropped 8 percent. Qualcomm, Micron, Broadcom and Arm were all down more than 5 percent.

However, companies with chip manufacturing operations in the US gained, with Intel, GlobalFoundries and Texas Instruments up between 0.3 percent and 8.5 percent. Some analysts believe Intel could benefit from the geopolitical tensions as it is building several plants in the country.

“Market reactions are likely short-lived because the fundamental factors driving these markets haven’t changed. Yes, US restrictions on shipments to China will likely increase somewhat – regardless of the US election outcome – but they’ve already been in place for a while,” said Bob O’Donnell, chief analyst at TECHnalysis Research.

The Biden administration has moved aggressively to curb Chinese access to cutting-edge chip technology, including sweeping restrictions issued in October to limit exports of AI processors designed by firms including Nvidia.

The curbs have dented US chipmakers’ sales to China. Nvidia’s revenue from China stood at about 18 percent of its total revenue in the quarter that ended April 28, compared with 66 percent in the year-ago period.

Former US President Trump told Bloomberg Businessweek that Taiwan should pay the US for its defence as it does not give the country anything. That sent US-listed shares of Taiwan’s TSMC – the world’s largest contract chip maker – down 6 percent.

Taiwan plays an outsized role in the global chip supply chain and analysts have warned that any conflict over the island may shatter the global economy.

The Philadelphia Semiconductor index was down more than 5 percent in afternoon trading, on track for its biggest one-day percentage decline since October 2022.

The index still remains up 32 percent for 2024, outperforming the S&P 500 index’s 17 percent gain, thanks to the AI boom.

Domestic chip makers to benefit

Intel has been investing heavily to restore the manufacturing edge it lost to TSMC. It is also one of the biggest beneficiaries of the US Chips Act signed by President Joe Biden in August 2022 with $52.7bn in subsidies.

Several policy experts said Washington’s focus on semiconductors will likely continue, even if Trump returns to power, with potentially more curbs on exports to China and support for domestic chipmakers such as Intel.

But they warned questions remain over Intel’s ability to revitalize its manufacturing business, with the company’s foundry segment recording an operating loss of $2.47bn for the quarter ended March 30.

“It’s likely President Trump would not only continue export restrictions, but strengthen them,” said Michael Sobolik, a senior fellow at the American Foreign Policy Council.

“He initiated many semiconductor export controls during his first administration, including the powerful ‘foreign direct product rule’ that limited foreign parties from enabling Huawei’s access to semiconductors.”

- REUTERS