Chip stocks faced significant pressure on Tuesday as the United States announced plans to further restrict semiconductor sales to China. According to a report from The Wall Street Journal, these new rules will specifically target advanced semiconductors, including chips utilized for artificial intelligence.
Commerce Secretary Gina Raimondo emphasized that the majority of semiconductors will remain unaffected by these restrictions. However, if any national security or human rights concerns arise, decisive action will be taken in collaboration with our allies.
In response to this news, shares of Nvidia Corp. (NVDA) dropped nearly 6% during morning trading on Tuesday, marking their worst single-day performance since December 27, 2022, when they fell 7.1%. Similarly, Advanced Micro Devices Inc. (AMD), Intel Corp. (INTC), Marvell Technology Inc. (MRVL), and Broadcom Inc. (AVGO) also experienced declines of over 2%.
It is worth noting that semiconductor-capital-equipment companies such as Lam Research Corp. (LRCX) and KLA Corp. (KLAC) saw their stocks decrease by approximately 3%.
As a result of these developments, the PHLX Semiconductor Index (SOX) witnessed a decline of nearly 2%. The Impact of Updated Export Controls on the U.S. Semiconductor Industry
The Semiconductor Industry Association expressed concerns over the potential impact of the recently updated export controls on the U.S. semiconductor industry. In a statement released on Tuesday, the trade group emphasized that overly broad, unilateral controls could have negative consequences for the U.S. semiconductor ecosystem without necessarily advancing national security. Furthermore, they highlighted the risk of encouraging overseas customers to seek alternative suppliers.
Notably, the Commerce Department has yet to provide written information regarding the restrictions in response to inquiries.
Anticipation for the announcement of China export restrictions from the U.S. government had been mounting on Wall Street. Prior to the official announcement, Jordan Klein, an analyst at Mizuho, offered insights into the potential consequences of rules seeking to completely block sales to China of chips with a minimum of 20 billion transistors and high-bandwidth memory.
Klein’s analysis indicated that such regulations would significantly expand current China export controls, affecting key players like Nvidia and encompassing chips such as A800 / H800 by Nvidia, MX300 by AMD, and Gaudi2 by Intel, all with transistor counts ranging from 54-140 billion.
Investor sentiment suggests a subdued level of immediate concern, according to Klein’s conversations. However, anxieties are growing regarding potential losses in revenue and earnings per share starting in fiscal year 2025.
Restrictions on China: The U.S. Government’s Actions
Last year, the U.S. government implemented a series of restrictions concerning China. These measures aimed to address various concerns and ensure the country’s interests were safeguarded. Let’s take a closer look at the key restrictions imposed by the U.S. government on China.