U.S. Chip Stocks See Turbulence Amid Trade Curbs with China

U.S. chip stocks faced volatility following a major sell-off as reports surfaced about potential U.S. curbs on advanced chip technology exports to China. Asia's semiconductor stocks also tumbled. Despite some analysts viewing this as a buying opportunity, heightened uncertainty looms as U.S. presidential candidates maintain tough trade stances.

U.S. chip stocks experienced notable volatility on Thursday following a substantial sell-off on Wednesday and a decline in semiconductor stocks across Asia. This movement came after reports suggested that the United States is contemplating stricter regulations on exporting advanced chip technology to China. The Bloomberg News report hinted that the Biden administration might employ the foreign direct product rule, allowing the U.S. government to halt sales of products made using American technology.

If enforced, these potential restrictions could affect companies such as Tokyo Electron and ASML from the Netherlands. The Global X Asia Semiconductor exchange-traded fund closed down by 1.74%, with significant declines noted among SK Hynix, Tokyo Electron, Taiwan Semiconductor Manufacturing Co (TSMC), and Samsung Electronics.

The Philadelphia Semiconductor index, after initially rising by 1.7% on Thursday, reversed to a 0.8% decline, following a 6.8% drop on Wednesday—its most significant one-day decline since March 2020. Analysts like Vedvati Shrotre from Evercore ISI and Vivek Arya from Bofa interpreted the volatility as a buying opportunity in companies with strong profitability. However, Daniel Morgan, a portfolio manager at Synovus Trust, anticipates continued uncertainty due to upcoming earnings reports and tough trade stances from both U.S. presidential candidates.

Morgan highlighted an 11% plummet in ASML shares on Wednesday, underlining concerns about firms with significant exposure to the Chinese market. Despite strong performance, ASML's disclosure that half of its sales came from China spooked investors. Still, Morgan reminded that chip companies have historically weathered such trade tensions well.

Top gainers in the U.S. market included Intel (+3.8%), GlobalFoundries (+2.3%), and NXP Semiconductor (+1%), while Nvidia saw a modest gain of 0.5%. Conversely, Advanced Micro Devices dropped more than 3% after a 10% plunge on Wednesday, its most significant decline since October 2022. TSMC's U.S. shares fell 3.6% after losing substantial market value in Asian trading.

TSMC forecasted a positive full-year revenue outlook driven by increased demand for AI-related chips. Meanwhile, U.S. Republican presidential nominee Donald Trump's remarks about Taiwan sparked additional concern. In Europe, ASML shares fell 3.6%, with their U.S. counterparts down 1.8%, and Asian semiconductor giants like SK Hynix and Tokyo Electron saw marked declines.