Chip stocks lose more than $500 billion in value on trade fears with China By Reuters

By Arsheeya Bajwa

(Reuters) – Wall Street’s semiconductor index lost more than $500 billion in value on Wednesday in its worst session since 2020 after a report said the United States was considering tighter restrictions on exports of advanced semiconductor technology to China.

Comments by Republican presidential candidate Donald Trump that Taiwan, an important manufacturing location, should pay the US for its defense, fueled the sell-off in chip stocks.

Chip investors’ latest concerns come after Washington has pursued a more protective policy toward the U.S. semiconductor industry in recent years, which it sees as strategically important for competing with China.

Bloomberg News reported on Tuesday that the United States has told its allies that it is considering the toughest trade restrictions available if the companies continue to give China access to advanced semiconductor technology.

U.S.-listed shares of Dutch chipmaking equipment maker ASML Holding (AS:) fell 13% following the report, even though the company beat second-quarter earnings estimates.

AI heavyweight Nvidia (NASDAQ:) fell nearly 7%, losing more than $200 billion in market capitalization.

Smaller rivals AMD (NASDAQ:) and Arm lost about 10%, Micron (NASDAQ:) lost 6% and Broadcom (NASDAQ:) lost 8%.

Companies with U.S. chip manufacturing operations gained, with GlobalFoundries (NASDAQ:) up nearly 7% and Intel (NASDAQ:) up 0.35%. Some analysts believe Intel could benefit from geopolitical tensions as the company builds several factories in the country.

“Market reactions are likely to be short-lived as the fundamental factors driving these markets have not changed. Yes, U.S. restrictions on shipments to China are likely to tighten somewhat – regardless of the outcome of the U.S. election – but they have been in place for some time,” said Bob O’Donnell, chief analyst at TECHnalysis Research.

The administration of President Joe Biden is aggressively trying to limit Chinese access to cutting-edge chip technology. In October, it imposed sweeping restrictions to limit the export of AI processors from companies such as Nvidia.

The restrictions have hurt U.S. chipmakers’ sales to China. Nvidia’s revenue from China amounted to about 18 percent of its total sales in the quarter ended April 28, compared with 66 percent in the same period last year.

Trump, who is seeking re-election in the US election on November 5, told Bloomberg Businessweek that Taiwan should pay the US for its defence as the US is not giving the country anything. In response, US-listed shares of Taiwanese chipmaker TSMC – the world’s largest contract manufacturer of chips – plunged 8 percent.

Taiwan plays an outsized role in the global chip supply chain. Analysts warn that a conflict over the island could shake the global economy.

The Philadelphia Semiconductor Index fell 6.8%, its biggest daily loss since the COVID pandemic sent global markets into a tailspin.

The index remains up 30% for 2024, surpassing the previous year’s 17% increase thanks to the AI ​​boom.

Intel could benefit

Intel has invested heavily to restore the manufacturing lead it lost to TSMC. With $52.7 billion in subsidies, the company is also one of the biggest beneficiaries of the US Chips Act, which Biden signed in August 2022.

Several policy experts said the U.S. focus on semiconductors is likely to continue even after Trump returns to power, with possible further restrictions on exports to China and support for domestic chipmakers such as Intel.

However, they warned of uncertainty about Intel’s ability to revive its manufacturing business. The company’s foundry unit posted an operating loss of $2.47 billion in the quarter ended March 30.

“It is likely that President Trump will not only continue export restrictions, but may even tighten them,” said Michael Sobolik, senior fellow at the American Foreign Policy Council. “During his first term, he imposed many export controls on semiconductors, including the powerful ‘Foreign Direct Product Rule,’ which prevented foreign parties from providing Huawei with access to semiconductors.”