Global chip stocks, including ASML, Nvidia, and TSMC, experienced significant declines due to reports of stricter export restrictions from the U.S. and escalating geopolitical tensions, exacerbated by comments from former President Donald Trump saying Taiwan should pay the U.S. for defense. ASML, based in the Netherlands, saw its shares plummet by 11%, while Tokyo Electron in Japan closed nearly 7.5% lower. Other major chipmakers like Arm, AMD, Marvell, Qualcomm, and Broadcom also saw declines exceeding 5% by midday.
The market reaction followed a report by Bloomberg indicating that the Biden administration is considering broad rules to restrict the export of critical chipmaking equipment to China under the Foreign Direct Product Rule (FDPR). This rule enables the U.S. to impose controls on foreign-made products utilizing even minimal American technology, potentially impacting non-U.S. companies.
ASML reported earnings that surpassed market expectations for the second quarter, but concerns lingered as 49% of its sales occurred in China, highlighting the vulnerability of the firm amid tighter export controls. ASML manufactures essential machines for producing the world's most advanced chips.
Former President Trump's comments added to the negative sentiment surrounding semiconductor stocks, suggesting that Taiwan should financially compensate the U.S. for defense and claiming Taiwan controls nearly all of America's semiconductor business. These remarks raised uncertainty about the U.S.' commitment to defend Taiwan against potential Chinese aggression.
Taiwan Semiconductor Manufacturing Co. (TSMC) also saw its Taiwan-listed shares decline by 2.4% in response to the geopolitical tensions. In the U.S., chip stocks, including those in the VanEck Semiconductor ETF, Super Micro Computer, and Applied Materials, were adversely affected, with declines exceeding 5% in early trading.
TSMC is the world's largest semiconductor foundry and plays a crucial role in manufacturing advanced chips for a wide range of technology companies worldwide. Many leading companies, including Apple, Nvidia, AMD, Qualcomm, and others, rely on TSMC for their chip manufacturing needs.
The developments underscore the critical role Taiwan plays in global semiconductor manufacturing and its significance in U.S. economic and strategic interests amid escalating geopolitical tensions with China.
This could be a good opportunity to buy tech stocks if you are bullish on them long term, but if Trump wins the election, it could possibly affect some of these for a longer period of time if he is serious about scaling back support of Taiwan.