Image courtesy of 123rf.com

The semiconductor industry faced a significant downturn on Wednesday as reports emerged of potential new U.S. export restrictions on advanced chip technology to China. Nvidia (Nasdaq: NVDA), the leading AI chip manufacturer, saw its stock plummet 5.83% to $119.00, despite a year-to-date return of 140.45%.

The sell-off extended across the sector, with ASML Holding NV (AMS: ASML), Taiwan Semiconductor Manufacturing Company (NYSE: TSM), and other major players experiencing sharp declines.

U.S. Considers Stricter Export Controls on AI Chips

The Biden administration is reportedly contemplating the implementation of severe trade restrictions on companies providing China with access to advanced semiconductor technology. Sources familiar with the matter indicate that U.S. officials are considering the Foreign Direct Product Rule (FDPR), which would allow controls on foreign-made products using even minimal amounts of American technology.

This potential measure is being presented to officials in Tokyo and the Hague as an increasingly likely outcome if they do not tighten their own restrictions on China.

The U.S. aims to persuade allies to limit their companies’ ability to service and repair restricted equipment already in China, while also weighing additional sanctions on specific Chinese chip firms.

Semiconductor Stocks Take a Hit, Intel Notable Exception

The news of potential tighter export controls sent shockwaves through the semiconductor industry. ASML Holding NV, a key supplier of chip-making equipment, saw its shares plunge 10.19% to $959.30. TSMC, the world’s largest contract chipmaker, fell 6.81% to $173.38.

Japanese equipment providers Tokyo Electron, Lasertec Corp., and Screen Holdings Co. also experienced significant declines.

U.S. companies like Applied Materials Inc. (Nasdaq: AMAT), Lam Research Corp. (Nasdaq: LRCX), and KLA Corp. (Nasdaq: KLAC) could face further pressure if new restrictions are implemented. These firms have already argued that they have shouldered an unfairly large burden from existing export controls, which bar American companies from servicing and repairing restricted gear in China.

Interestingly, Intel Corporation (Nasdaq: INTC) bucked the trend, with its stock rising 4.18% to $35.78. This outperformance suggests that some investors view Intel as a potential beneficiary of the geopolitical tensions surrounding the semiconductor industry.

More By This Author: