President Joe Biden and former President Donald Trump tag-teamed to hit microchip stocks on Wednesday, pressuring names ranging from Applied Materials Inc. to Nvidia Corp. on worries over both Taiwan and China.
Many chip stocks saw steep declines in Wednesday’s action, in what was the semiconductor sector’s worst daily performance in over four years.
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The PHLX Semiconductor Index SOX fell 6.8% to clinch its largest single-day percentage drop since it fell 9.8% on March 18, 2020.
Read: Why Intel’s stock is bucking the semiconductor sector’s worst selloff since 2022
Shares of Applied Materials AMAT, Lam Research Corp. LRCX and Advanced Micro Devices Inc. AMD all dropped more than 10% on the day. Other big losers included shares of Super Micro Computer Inc. SMCI, down 6.9%.
Shares of Nvidia NVDA dropped 6.6% and shares of Micron Technology Inc. MU fell 6.3%. Micron has a largely U.S.-based business but is seeing its stock swept up in the downward action, according to Mizuho desk-based analyst Jordan Klein.
Broadcom Inc.’s stock slid 7.9% to book its worst single-day percentage loss since a 15.9% plunge on March 18, 2020.
The Biden White House reportedly told its allies in Japan and the Netherlands that it may invoke what’s called the foreign direct product rule to limit sales to China. That allows the U.S. to impose controls on any company that uses even a tiny amount of U.S. technology.
That news, reported by Bloomberg News, sent shares in microchip equipment makers Tokyo Electron Ltd. JP:8035 and ASML Holding NV NL:ASML lower. ASML separately reported better-than-expected second-quarter numbers but guided for worse-than-forecast third-quarter sales.
The report was “overshadowed by talk of tighter China restrictions,” Mizuho’s Klein said in a note to clients. “Hence, the weakness pushing fast money to sell the news on sector rotation out of semis.”
Meanwhile, Trump told Bloomberg Businessweek in an interview that Taiwan should have to pay for its own defense. The comments, whether they represent a formal policy position or not, undermine the U.S. commitment to defending Taiwan in the event that China tries to retake what it views as part of its country.
Trump also said that Taiwan “did take about 100% of our chip business,” with Bloomberg Businessweek flagging third-party data showing that Taiwan is responsible for more than 90% of advanced microchip production.
“We think the commentary does add greater uncertainty to chipmakers and may escalate given an expected tougher stance by both Biden and Trump ahead of the election,” CFRA analyst Angelo Zino wrote.
Taiwan is home to Taiwan Semiconductor Manufacturing Co. TSM, the contract microchip supplier of Nvidia and many other companies. Taiwan Semi, which is an ASML client, saw its stock slump 8% on Wednesday.
“We have been arguing that semiconductors are firmly entrenched in the national security mindset,” said Peter Tchir, a strategist at Academy Securities. “The development and production of chips are major concerns at the national security level. While much of the focus has been on high tech and future tech, the concern has been expanding.”
Taiwan Semi is due to report its own results on Thursday, and Klein said those numbers will be crucial in determining where the semiconductor sector heads from here. He advised chip-sector investors to remain calm.
“My personal take is not to freak out and start indiscriminately selling semis with reckless abandon,” he wrote. “A pullback and risk-off trade into July earnings season IS GOOD IN MY VIEW to lower expectations and very elevated and euphoric investor positioning/sentiment in the semi sector.”
See more: Nvidia could remain a big earnings winner — along with these other chip stocks
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