Chip stocks hit by new AI tech and chip ban for China

The chip sector tanked on Friday after US regulators moved to curb China’s military ambitions by issuing new restrictions on semiconductor and artificial intelligence technology that can be sold to the country.

On Friday, the US Department of Commerce expanded its list of chip technology that requires a license to be sold to China, essentially a euphemism for a ban if the license can be denied, and the PHLX SOX Semiconductor Index,
which was down around 3% before the news broke, was down 6% about two hours later.

That was served fresh in the back of Advanced Micro Devices Inc. AMD,
issuing a shortfall warning of $1 billion in expected sales to PC customers. After MU of Micron Technology Inc.,
Forecasting revenue about $1 billion below Street’s expectations last week, the news led analysts to question whether 2022’s sudden chip glut is worse than 2019’s. AMD shares fell further 12% and Micron shares fell 2%.

Read: ‘This is worse than 2019’: Micron faces ‘unprecedented’ supply problems and analysts are divided on whether it has bottomed out

Friday’s drop is just the worst one-day drop in the SOX index since September 13, when it fell nearly 6.2%. In fact, Friday is simply the third worst single-day performance of the year for the SOX index with a drop of just over 6.2% on June 16.

The new Commerce Department list adds to one from September that focused on AI technology from Nvidia Corp. NVDA,
Nvidia shares were down 7% on Friday.

Nvidia shares tumbled last month when it revealed the list of products it needed a license to sell in China, primarily the company’s A100 and H100 data center AI technology, and estimated a potential hit of $400. million in expected third-quarter revenue if the licenses were denied, adding to Nvidia’s bleeding this year after cutting its outlook not just once, or twice, but three times.

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Read: Nvidia’s ‘China Syndrome’: Are Stocks Melting?

Bans on chip technology in China are nothing new: Just over two years ago, a ban targeted the machines needed to turn silicon wafers into finished chips, equipment made by companies like Lam Research Corp. LRCX,
and KLA Corp. KLAC,
and in 2018 it was about Micron and memory chips. Lam’s shares fell 6% on Friday, while KLA’s fell 5%.

In the rest of the sector, the shares of Intel Corp. INTC,
fell 5% on Friday, while shares of Qualcomm Inc. QCOM,
decreased 3% and Broadcom Inc. AVGO,
shares fell 4%. Texas Instruments Inc. TXN Stock,
which happens to be the largest US supplier of auto chips, fell 4%.

Read: AMD shows the end of the PC boom may be hurting chipmakers more than expected

As for the third-party factories that produce the silicon wafers that become microchips, Taiwan Semiconductor Manufacturing Co. TSM shares,
shares fell 5% and GlobalFoundries Inc. GFS,
shares fell 6%. Shares of Marvell Technology Inc. MRVL,
which in August disappointed with its data center forecast, fell 11%.

The SOX index is down 40% on the year, with AMD and Nvidia stocks leading the decline with declines of almost 60% in 2022, while the S&P 500 SPX index,
has lost 24%, and the tech-heavy Nasdaq Composite COMP
It’s down 32%.

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