Share prices in major semiconductor companies are down across the board in premarket trading this morning. That includes shares in Taiwan Semiconductor Manufacturing Company (TSMC), which fabricates the chips used in Apple’s iPhones, and Nvidia Corporation, which makes the chips that power AI platforms like ChatGPT.
As of the time of this writing, Nvidia shares (ticker: NVDA) are down over 4% in premarket trading to $121.25. Taiwan Semiconductor shares (ticker: TSM) are down over 5% to $176.50. Advanced Micro Devices shares (ticker: AMD) are also down over $4.5% to 169.34.
Why are chip stocks down? There are two likely culprits.
Trump’s comments on Taiwan
In an interview with Bloomberg Businessweek, former president Donald Trump, who is vying to regain the presidency this November, was asked if he would defend Taiwan against an invasion by China.
Trump responded, “I think, Taiwan should pay us for defense. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything.”
Taiwan is, of course, home to TSMC, which makes most of the world’s advanced chips that are in everything from iPhones to high-end servers that run critical infrastructure. A China invasion of Taiwan could see a disruption of TSMC’s chips to the West, putting countries like the United States at a technological, economic, and strategic disadvantage.
Taiwan’s chipmaking advantage is often referred to as the “silicon shield” in geopolitical circles. Its chip manufacturing capabilities and supply chain are seen as critical to Western powers, which is why America has so readily leant Taiwan defense support for the past four decades.
But if a second-term Trump White House decides that its defense of Taiwan is now contingent on financial compensation, and Taiwan cannot afford that, an invasion of Taiwan by China would likely be more plausible, and any invasion would likely lead to disruption at TSMC, reducing outputs and affecting revenue—thus impacting the company’s share price.
New China restrictions
Another reason chip stocks are down today seems to be related to chip equipment manufacturing giant ASML Holding.
As MarketWatch reports (citing Bloomberg), the Biden administration is said to be considering implementing more restrictions on ASML Holding that would prevent it from selling equipment to China. ASML Holding is a Dutch company that makes the equipment chip manufacturers need to produce their chips.
Shares in ASML Holding (ticker: ASML) are currently down nearly 7.75% to $985.48 in premarket trading as of the time of this writing.
Whenever there is increased uncertainty among major players in an industry, in this case, TSMC and ASML, the news also tends to drag on the stock prices of other major players who operate in the same space.
Chip stocks have been driving the market to new heights in recent months, with Nvidia shares up more than 162% this year. The company split its stock 10 to 1 early last month.
