Slowdown and Tariff Concerns Impact Semiconductor Sector

On Monday, stocks in the artificial intelligence (AI) chip sector, including Nvidia Corp (NVDA), Taiwan Semiconductor Manufacturing Co (TSM), Broadcom Inc (AVGO), Arm Holdings (ARM), Micron Technology, Inc (MU), Marvell Technology, Inc (MRVL), and Qualcomm Inc (QCOM), faced significant declines.

Recent reports suggest that U.S. subsidies for contract chipmakers such as Taiwan Semiconductor might be abolished. President Donald Trump has expressed a desire to eliminate the U.S. CHIPS Act.

Trump is scheduled to meet with leaders from top tech companies, including HP Inc (HPQ), Intel Corp (INTC), International Business Machines Corp (IBM), and Qualcomm, which stand to be negatively impacted by stricter tariff policies in the computer hardware market.

The potential application of new tariffs could escalate manufacturing costs in regions like China and disrupt existing supply chains.

A surge of interest in AI technologies has occurred following the rise of OpenAI's ChatGPT, leading major tech companies and startups to invest heavily in AI-related developments.

Additionally, the U.S. has imposed various semiconductor sanctions against China, limiting its access to advanced semiconductor technologies, including those used for AI, citing risks to national security.

At present, the VanEck Semiconductor ETF (SMH), a key indicator of the top semiconductor stocks, has dropped into negative return territory over the past year, now showcasing an annual decline of 2.93%.

SMH reached a 52-week high of $283.07, but has since decreased by 24.20%. Year-to-date, SMH is down 11.50%, with Nvidia dropping 30% from its 52-week peak of $153.13.

While Nvidia has decreased by 20% year-to-date, it retains a 24.75% increase over the past year. In contrast, Broadcom has shown a 42% rise year-on-year yet has declined by 20.50% this year. Taiwan Semiconductor has decreased by 14% year-to-date.

The semiconductor sector had been thriving due to the AI excitement; however, China's entry into the AI competition through DeepSeek—who claims to offer an AI model at a fraction of the cost of older models like ChatGPT—has shifted the dynamic.

Concerns regarding national security may lead to bans on DeepSeek's chatbot from government devices, following similar actions by nations including Italy and Canada.

DeepSeek's introduction has reportedly led to a $600 billion loss in Nvidia's market capitalization within a single day, contributing to a dramatic $1 trillion decline in market value, which has prompted U.S. regulators to reinforce restrictions on semiconductors.

Price Movements: On Monday, NVDA closed down by 5.03%, TSM by 3.64%, AVGO by 5.39%, and ARM by 7.30%.

semiconductors, stocks, tariffs, AI