Chip stocks tumble as Trump comments rattle investors

Unlock the US Election Countdown newsletter for free

The stories that matter on money and politics in the race for the White House

Semiconductor stocks around the world tumbled on Wednesday after former US president Donald Trump said Taiwan should pay for its own defence and a report that the US was considering imposing tougher restrictions on trading chips with China.

The tech-heavy Nasdaq Composite index fell 2.4 per cent in early trading on Wall Street, putting it on course for its worst day since October. The S&P 500 index was 1.2 per cent lower, on track to end a three-session winning streak.

Chip stocks led the declines, with Nvidia down 5.5 per cent and AMD falling more than 8 per cent. In Europe, ASML was down 11 per cent, following a Bloomberg report that the Biden administration was considering more severe trade restrictions on the Chinese sales of companies including the Dutch semiconductor equipment manufacturer.

Adding to worries over a sector that has driven much of the US equity market’s gains this year, Joe Biden’s presidential rival Trump told Bloomberg that Taiwan, which is central to the global chipmaking industry, should pay for its own defence.

The US-listed shares of industry bellwether Taiwan Semiconductor Manufacturing Co slipped 6 per cent by mid-morning in New York.

“The semi stocks are getting it from both sides of the political aisle thanks to reports that the Biden administration is looking at tighter curbs while Trump has made noises about Taiwan paying more for its defence,” said Steve Sosnick, chief markets strategist at Interactive Brokers, who warned that the move risked becoming something bigger.

“It would be a draconian move,” said Ted Mortonson, a tech strategist at Baird. “If you have international capacity you’re at risk, and this is having ripple effects on everything that is manufactured at TSMC.”

In contrast to the sharp declines in stocks with large Asian exposures, chip stocks with more US manufacturing capacity posted strong gains. Shares in GlobalFoundries jumped almost 10 per cent, while Intel rose 3.6 per cent.

“There has already been massive sector rotation in the past week — for example, anything that is Trump-oriented like industrials, that fits the ‘make America great’ narrative, has rallied. This is just adding to it,” said Mortonson.