Semiconductor ETFs have plunged this week as geopolitical headlines clashed with upbeat news on AI.
The $24 billion VanEck Semiconductor ETF (SMH) and the $16 billion iShares Semiconductor ETF (SOXX)—the two largest semiconductor-focused ETFs— tumbled 7% a piece on Wednesday after a double whammy of negative headlines.
The Biden administration is considering intensifying its trade restrictions on semiconductor companies that do business with China, according to a Bloomberg report published earlier this week.
The restrictions would mostly impact semiconductor companies based in allied foreign nations, like Japan and the Netherlands, which have continued to do business with China despite more stringent limitations on U.S. chip companies.
The policies have “cost American companies billions of dollars in revenue,” said the report, which added the “US chip industry argues that it has shouldered an unfairly large part of the burden, and that there needs to be more allied cooperation to prevent China from finding ways around the existing controls.”
Shares of ASML, the Dutch maker of lithography systems that are crucial to the manufacture of high-end chips, tumbled nearly 13% on Wednesday.
ASML has a 4.5% weighting in SMH and a 3.5% weighting in SOXX.
Trump Tepid on Taiwan Support
Meanwhile, also on Tuesday, Bloomberg Businessweek published an extensive interview with former president Donald Trump, in which he was ambiguous about what protection the U.S. would offer Taiwan against an invasion by China if he were to become president again.
“I think, Taiwan should pay us for defense. You know, we’re no different than an insurance company,” he said.
The comments caused the stock of the Taiwan Semiconductor Manufacturing Company to drop 8% on Wednesday. TSM has a 4% and 13% weighting, respectively, in SOXX and SMH.
However, the stock got a boost on Thursday after it reported strong earnings due to torrid demand for AI chips.
“This time, AI demand is more real than two or three years ago,” the company’s CEO said on the earnings conference call. “The supply continues to be very, very right all the way into 2025.”
“The demand is so high, I have to work very hard to meet my customers’ demand,” he added.
TSM manufacturers chips for Nvidia, AMD, Apple and others.
The company’s earnings report and comments lent support to some stocks in the industry on Thursday. Nvidia shares traded up by around 2% midday Thursday, though others like AMD traded lower by the same amount.
In addition to the China and Taiwan headlines earlier this week, a rotation away from tech stocks and into other sectors has been weighing on chip stocks and ETFs in recent days.