Analysts say the big chip stock selloff is "overdone"
Just two days after reaching a peak with a 750-point gain, the Dow closed down 530 points on Thursday amid continued sell-offs of AI and tech stocks. As the day ended, the Dow Jones Industrial Average was down 533 points, or 1.2%, to 40,665. Meanwhile, the S&P 500 and Nasdaq $NDAQ both shed 0.7%.
AI stocks were down on Thursday, including Advanced Micro Devices, Super Micro Computer, and Micron $MU Technology, which lost around 2.3%, 1.8%, and 1.75%, respectively. The major tech stocks were also down, including Amazon $AMZN, Apple $AAPL, and Alphabet $GOOGL, which shed 2.2%, 2%, and 1.8% respectively.
The decline in AI and tech share prices follows a report about potential export controls under the Biden administration as well as comments on Taiwan by former President Donald Trump.
Bloomberg reported yesterday that the Biden administration is considering severe trade restrictions if firms such as Tokyo Electron and ASML $ASML Holding continue to provide China access to their advanced semiconductor technology. Invoking the foreign direct product rule (FDPR) would represent a significant crackdown on the sharing of American intellectual property with the country. The rule could hit chips with even the smallest sliver of American-made technology, and would impact U.S. and non-U.S. companies.
Moreover, the former president and Republican presidential nominee told Bloomberg Businessweek that he believes Taiwan should pay the U.S. for its defense. Trump also claimed that Taiwan has taken “about 100%” of America’s semiconductor business. Hsinchu, Taiwan-based TSMC $TSM is the world’s largest chipmaker, manufacturing an estimated 90% of the most advanced chips that power everything from iPhones to artificial intelligence models.
Meanwhile, the big selloff of chip stocks was a bit excessive — at least that’s what Jefferies and Bank of America $BAC analysts think.
“We believe the Bloomberg story on potential China restrictions is unsubstantiated and the market reaction is overdone,” Jefferies analyst Janardan Menon wrote in a research note Thursday. He’s referring to the hits taken by TSMC, Nvidia $NVDA, ASML, Tokyo Electron, Arm, and Applied Material shares directly following reports of tough-on-trade sentiments from the Biden administration and comments on Taiwan from former President and Republican nominee Donald Trump.
— Rocio Fabbro and Laura Bratton contributed to this article.
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