Chip stocks suffered under reports that President Joe Biden and former President Donald Trump are both considering plans that would rock the industry.
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In today's big story, we're looking at why reports of more potential trade restrictions have chip companies on their heels.
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One of the buzziest sectors of the stock market faced a noticeable setback.
Chip companies like Nvidia and AMD saw their share prices drop Wednesday off a report that President Joe Biden is considering further tightening China trade restrictions, writes Business Insider's Kelly Cloonan.
As part of its ongoing trade war with China, the Biden administration is mulling leveraging a rule allowing it to control foreign products that use American-made tech, according to Bloomberg.
The immediate impact of such a move would be felt by foreign players like Netherlands-based ASML, which would have to alter its business with China. It finished down almost 13%.
But even US companies not directly impacted felt the sting of the report. Shares in AI chipmakers Nvidia and AMD were down more than 6% and 10%, respectively.
Even if November's election brings a new administration, chipmakers might not get relief. Trump recently complained about Taiwan taking away the US's chip-manufacturing business and suggested it should pay the US for protection against China. Shares in Taiwan-based TSMC dropped more than 8%.
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I prefer chips you can dip in guacamole — so I turned to BI's senior reporter Emma Cosgrove, who covers chip companies, to help make sense of it all.
Does the reaction to more potential trade restrictions seem overblown, or is there real concern here?
Trade restrictions are certainly real concerns for chip companies. Restricting any company from selling its products in a market as large as China is enough to cause understandable angst. Combine that with the expectation that the peak for these stocks is imminent, or maybe behind us, and the result is the market reaction we've seen. But there are no immediate industry-wide shifts here.
What about Trump's comments regarding Taiwan? Is that an even bigger issue for the industry?
The supply-chain base for most of the chip industry is in Taiwan, specifically TSMC. Since China claims Taiwan, TSMC's location is an ever-present source of uncertainty in this industry to which no one really has an answer. It's a major reason, among others, that politicians are interested in bringing more chip manufacturing to the US.
What's the knock-on effect for those relying on these chips for their AI plans?
Politicians and regulators have no interest in making American AI companies less competitive and demand is still extremely high. My sources tell me supply is improving and that's likely to continue.
With so much geopolitical tension, is it possible the chip industry becomes more regionalized?
Short-term: no. To oversimplify, the more impressive the chip, the more complicated it is to make. It's not just a matter of investment in US manufacturing. It's specialized equipment, talent, and expertise that's really difficult to replicate. There is more US chip manufacturing on the way, but not to the scale that it will tip the geopolitical balance in a major way any time soon.
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