Wall Street's semiconductor index lost more than $500 billion in market value on Wednesday, marking its worst trading day since 2020, Reuters reported.

The chip crash was partly due to previous reports that the United States was considering tightening export restrictions on advanced semiconductor technology to China. Meanwhile, Republican presidential candidate Donald Trump said Taiwan should pay protection fees to the United States as a chip production center because, in his view, Taiwan has taken away the chip business from the United States, which has exacerbated the sell-off in chip stocks. Reuters said that in recent years, the US government has taken a more protective stance on the US semiconductor manufacturing industry, believing that the industry is of great strategic significance for competing with China, which has caused the latest concerns among chip investors.

01 US chip giants fell

Although the United States has been tightening restrictions on Chinese chips over the past period of time, U.S. chip manufacturers continue to support their Chinese customers under the premise of compliance, which to some extent supports the surge in U.S. chips. Statistics show that the Philadelphia Semiconductor Index will still rise by 30% in 2024, outperforming the 17% growth of the S&P 500 Index.

However, we have to admit that these restrictions have weakened US chipmakers' sales to China. In the quarter ending April 28, Nvidia's revenue from China accounted for about 18% of its total revenue, compared with 66% in the same period last year.

After the news came out, the tech-heavy Nasdaq Composite Index fell 2.8% in New York, marking its worst day since December 2022. The S&P 500 fell 1.4%, ending a three-day winning streak. The Philadelphia Semiconductor Index fell more than 5% in afternoon trading, and is expected to record its largest single-day percentage drop since October 2022.

Among them, artificial intelligence giant Nvidia fell nearly 7%, losing more than $200 billion in market value. Smaller rival AMD fell 8%. Qualcomm, Micron, Broadcom and Arm all fell more than 7%. Among them, Broadcom's stock price fell 7.9%, the largest single-day percentage drop since a 15.9% plunge on March 18, 2020. At the same time, the stock prices of Applied Materials, Lam Research and KLA-Tencor, the three largest chip equipment manufacturers in the United States, also fell sharply on Wednesday. Among them, Applied Materials' stock price fell 7.8% at one point, the largest intraday drop since November.

These defeats have evaporated $496 billion in the stock market value of the Philadelphia Semiconductor Index.

Investors have become accustomed to non-stop good news from tech stocks, so the slightest bit of negativity will catch people off guard and cause panic in the market," said Dan Coatsworth, investment analyst at AJ Bell.

Semiconductor stocks are being hit by a double whammy from both partisan political forces," said Steve Sosnick, chief market strategist at Interactive Brokers. "If the rotation from outperforming tech stocks turns into a larger rout in the large-cap stocks that have driven the market higher, there really is nowhere for investors to hide," he added.

Ajay Rajadhyaksha, chairman of Barclays Global Research, said the moves reflect investors' heightened focus on political risk, the fact that Trump's odds of winning the U.S. election have greatly improved over the past three weeks, and a "very aggressive rotation trade" by investors that continues to move from large-cap stocks to small-cap stocks.

"Tech stocks have had an incredible run over the past year and a half," he said, "so people are taking profits on the news."

U.S. chip equipment makers Applied Materials, Lam Research and KLA-Tencor have been hammering home their case in a series of recent meetings with U.S. officials, according to people familiar with the matter. They argue that current trade policies are counterproductive, hurting U.S. semiconductor companies but failing to stop China's growth as the U.S. government hopes.

02 Chips failed to hold up

From Japan, the Netherlands, South Korea, and Taiwan

As U.S. chips plummeted, chip giants in Japan, the Netherlands, South Korea and Taiwan also fell synchronously.

First, in Japan, after the news of U.S. restrictions came out, the stock price of Tokyo Electron Ltd., Japan's largest semiconductor equipment manufacturer, fell 8.3% on Wednesday, the largest intraday drop in three months. Screen Holdings Co. fell 5.1%, Disco Corp. fell 4.1%, and Advantest Corp. fell 2.5%. Lasertec also performed poorly.

Hiroshi Namioka, chief strategist at T&D Asset Management, said that more than 20% of Tokyo Electron's sales come from China. "The fact that Tokyo Electron is at the center of this incident may put pressure on the stock price," he said.

Coming to the Netherlands, ASML's stock price fell despite reporting second-quarter earnings that exceeded market expectations. Data showed that the company's shares plummeted 11% to 870.90 euros in Amsterdam, wiping out 42.7 billion euros (46.7 billion U.S. dollars) in market value, the biggest drop since March 2020. This is mainly because 49% of the company's sales in the same period came from China - highlighting how much risk the company faces if restrictions are tightened.

As for Korean companies, they were also hit hard. Data showed that SK Hynix's stock price closed at 220,500 won (about 163 US dollars) yesterday, down 5.36% from the previous day, the biggest drop in nearly nine months since October 26 last year. Hanmi Semiconductor, the main supplier of SK Hynix's production line equipment, also fell 5.18% to 159,400 won. Samsung Electronics closed at 86,700 won, down 1.14%. Foreign investors sold SK Hynix shares net, selling 409 billion won worth of shares, making it the most sold stock in the Korean market. The Korea Composite Stock Price Index closed at 2,843.29 points, down 22.8 points (0.80%) from the previous trading day. In the Seoul foreign exchange market, as of 3:30 p.m., the won-dollar exchange rate was 1,381.5 won, down 3.4 won from the previous trading day.

In Taiwan, TSMC's reaction was also not small. TSMC's share price on the Taiwan Stock Exchange also took a hit, closing at NT$1,030, down 2.37% from the previous trading day. TSMC's share price in the United States fell as much as 8%.

The global semiconductor industry is an important part of the modern economy, and companies such as SK Hynix, TSMC and Samsung Electronics play a key role in it. Geopolitical tensions between the United States, China and Taiwan have added another layer of complexity, as Taiwan's important position in the semiconductor market affects the global supply chain. Trump's presidency and his policies, especially his stance on trade and manufacturing, have historically influenced market dynamics, and his recent remarks are no exception.

The US government's semiconductor bill and subsidies are aimed at revitalizing the domestic semiconductor industry and reducing dependence on foreign manufacturers, but Trump's remarks have cast doubt on the effectiveness and future of these subsidies, causing market turmoil.

03 American chipmakers, the only winners?

As chip companies plummeted, only U.S.-based wafer manufacturers such as Intel and GlobalFoundries received good news.

Data showed that Intel and GlobalFoundries rose on Wednesday, unaffected by the general sell-off of chip companies, as investors speculated that the two companies might benefit from the new policies of the Biden or Trump administration. Intel's stock price rose 8.2% at one point, and Globalfoundries' stock price rose 14%.

Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said: "Trump's remarks benefited Intel, and Intel does have manufacturing capabilities in the United States, so it will be a beneficiary."

Logically, it is actually very simple to understand this matter. From the Trump administration to the Biden administration to the possible Trump administration, one thing they have been insisting on is to promote the local manufacturing of chips, and Intel and GlobalFoundries, as the only two domestic chip manufacturing companies in the United States, their benefits are obvious.

Currently, Intel Foundry has received $8.5 billion in U.S. CHIP Act subsidies and up to $11 billion in loans. Intel Foundry, an independently managed division of Intel, is moving forward with its plan to become the second largest foundry after TSMC by 2030.

To date, the company has announced four new factories in the U.S., two in Arizona and two in Ohio.

The two factories in Chandler, Arizona - Intel's Fab 52 and Fab 62 - have made the most progress since Gelsinger's announcement in early 2021. As of December 2023, Intel revealed that work on the factory’s concrete superstructure was complete. Construction teams are currently installing automated material handling systems, which Intel describes as "automated highways" for transporting wafers.

The fab is expected to start production later this year or in early 2025, and plans to produce chips based on Intel's next-generation Angstrom-era process technology. This includes the mass-market Intel 18A node.

Meanwhile, in Ohio - Intel's first new U.S. fab in more than 40 years - construction teams are busy digging. The foundry claims that in 2023, construction crews moved more than 4 million cubic yards (3.53 million metric tons) of dirt - the equivalent of 248,000 dump truck loads - and laid more than 32 miles (51.4 kilometers) of pipe.

Much of this year's work will focus on building the fab to a practical level and bringing in the "overload" manufacturing equipment needed for the next phase of construction. Intel's fab in Ohio was expected to start production in 2025. However, as we reported in February, delays in US CHIPS Act funding and changes in market dynamics appear to have pushed the completion date back to the end of 2026.

Meanwhile, the United States awarded chipmaker GlobalFoundries $1.5 billion in bonuses. As part of its plan to support GlobalFoundries, the government will also provide another $1.6 billion in federal loans. The grants are expected to triple the company's production capacity in New York State within 10 years.

Autonomy to GlobalFoundries will help the company expand its existing plant in Malta, New York, allowing it to fulfill its contract with General Motors to ensure the production of specialized chips for its cars. It will also help GlobalFoundries build a new plant to produce key chips that are not currently produced in the United States. These include a new class of semiconductors suitable for use in satellites because they can withstand high doses of radiation.

The funds will also be used to upgrade the company's Vermont operations to build the first U.S. factory capable of producing chips for electric vehicles, power grids, and 5G and 6G smartphones. Government officials said that without the investment, the Vermont plant would face closure. U.S. Commerce Secretary Gina Raimondo said awarding the contract to GlobalFoundries would help ensure a steady supply of chips for major automotive suppliers and manufacturers and prevent supply chain problems.

04 At last

As the former CEO of ASML said, the chip competition between China and the United States will continue for some time, which should be the consensus of most people in the world. However, US allies such as Japan, the Netherlands and South Korea do not seem to have much interest in continuing to strengthen chip restrictions on China. According to people familiar with the matter, Tokyo government officials have said that such measures will not be enforced. Representatives of the Japanese Ministry of Economy, Trade and Industry and the Dutch Ministry of Foreign Trade both declined to comment.

Lin Jian, spokesman for the Chinese Ministry of Foreign Affairs, bluntly stated that China has repeatedly expressed its solemn position on the malicious blockade and suppression of China's semiconductor industry by the United States. The United States has politicized, pan-securityized and instrumentalized economic, trade and technological issues, and has continuously increased chip export controls on China, coerced other countries, suppressed China's semiconductor industry, seriously undermined international trade rules, and damaged the stability of the global supply chain, which is not conducive to any party. China has always firmly opposed this. Lin Jian said that he hopes that relevant countries will distinguish right from wrong, resolutely resist coercion, jointly maintain a fair and open international economic and trade order, and truly safeguard their own long-term interests.

In my opinion, there is another uncertain factor in the current semiconductor stock market, that is, driven by AI, Nvidia's stock price has repeatedly hit new highs. Will it burst? When will it burst? It will become a key factor affecting the future of chip stocks.

Finally, in this turmoil, all but five of the 30 components of the Philadelphia Semiconductor Index fell.

Reference Links: https://www.reuters.com/markets/us/chip-stocks-tumble-fears-tighter-us-curbs-sales-china-2024-07-17/

View more at EASELINK