Wall Street Semiconductor Index Plummets Amid Potential Export Restrictions
On Wednesday, Wall Street’s semiconductor index lost over $480 billion in market value, marking its worst session since 2022. This sharp decline followed a report that Washington is considering imposing stricter export controls on advanced semiconductor technology to China.
Adding to the market turmoil, Republican presidential nominee Donald Trump suggested that Taiwan, a critical production hub, should compensate the U.S. for its defense efforts, further intensifying the sell-off in chip stocks.
Bloomberg News reported on Tuesday that the U.S. has informed its allies about possibly implementing the most stringent trade restrictions if companies continue providing Beijing with access to advanced semiconductor technology.
In response to the report, U.S.-listed shares of Dutch chipmaking equipment provider ASML Holding (AS
) fell 11%, despite the company surpassing second-quarter profit estimates. AI leader Nvidia (NASDAQ
) saw a near 7% drop, losing over $200 billion in market capitalization. Smaller rival AMD (NASDAQ
) fell by 8%, while Qualcomm (NASDAQ
), Micron (NASDAQ
), Broadcom (NASDAQ
), and Arm all experienced declines exceeding 5%.
Conversely, companies with U.S.-based chip manufacturing operations saw gains. Intel (NASDAQ
), GlobalFoundries (NASDAQ
), and Texas Instruments (NASDAQ
) rose between 0.3% and 8.5%. Some analysts believe that Intel could benefit from the geopolitical tensions due to its ongoing plant construction within the country.
Bob O’Donnell, chief analyst at TECHnalysis Research, commented, “Market reactions are likely short-lived because the fundamental factors driving these markets haven’t changed. Yes, U.S. restrictions on shipments to China will likely increase somewhat – regardless of the U.S. election outcome – but they’ve already been in place for a while.”
The Biden administration has been proactive in restricting Chinese access to advanced chip technology, including broad limitations issued in October on exporting AI processors designed by companies like Nvidia. These restrictions have impacted U.S. chipmakers’ sales in China. Nvidia’s revenue from China was about 18% of its total revenue in the quarter ending April 28, compared to 66% in the same period the previous year.
Former President Trump, in an interview with Bloomberg Businessweek, stated that Taiwan should pay the U.S. for its defense, as it does not contribute anything in return. This remark caused shares of Taiwan’s TSMC, the world’s largest contract chipmaker, to drop by 6%. Analysts have cautioned that any conflict over Taiwan, which plays a crucial role in the global chip supply chain, could severely disrupt the global economy.
The Philadelphia Semiconductor index fell more than 5% in afternoon trading, heading towards its largest one-day percentage decline since October 2022. Despite this drop, the index remains up 32% for 2024, outperforming the S&P 500 index’s 17% gain, driven by the AI boom.
Intel Could Benefit
Intel has been heavily investing to regain its manufacturing edge over TSMC and is a significant beneficiary of the U.S. Chips Act, which President Joe Biden signed in August 2022, providing $52.7 billion in subsidies. Policy experts suggest that Washington’s focus on semiconductors will persist, even if Trump returns to power, potentially leading to more export restrictions to China and increased support for domestic chipmakers like Intel.
However, there are concerns about Intel’s ability to revitalize its manufacturing business, as its foundry segment reported an operating loss of $2.47 billion for the quarter ending March 30.
Michael Sobolik, a senior fellow at the American Foreign Policy Council, stated, “It’s likely President Trump would not only continue export restrictions but strengthen them. 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.”
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