Semiconductor Sector Faces Challenges Amid Tariff Talks and Subsidy Concerns

On Monday, stocks of prominent artificial intelligence chip companies, such as 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), are experiencing a downturn.

Recent reports suggest that the U.S. government may consider eliminating chip subsidies for contract manufacturers such as Taiwan Semiconductor. President Donald Trump has expressed intentions to abolish the U.S. CHIPS Act, which could significantly impact the semiconductor industry.

Trump is scheduled to meet with leaders from major tech firms, including HP Inc (HPQ), Intel Corp (INTC), IBM Corp (IBM), and Qualcomm, all of whom may face the repercussions of stricter tariff policies concerning computer hardware.

Additionally, tariffs on imported materials can raise manufacturing costs in hubs like China and may disrupt established supply chains within the industry.

The semiconductor sector has witnessed heightened interest and growth due to advances in AI technology. The announcement of OpenAI's ChatGPT has sparked an AI boom, which has encouraged major tech companies to invest heavily in their AI capabilities.

However, the U.S. has implemented several semiconductor sanctions on China, limiting its access to advanced semiconductor technologies essential for AI development, citing national security issues.

As a result, the VanEck Semiconductor ETF (SMH), which serves as a barometer for leading semiconductor stocks, saw its annual return turn negative. At the time of writing, SMH has a one-year negative return of 2.93%.

The ETF reached a 52-week peak of $283.07 but has dropped 24.20% from that high, with a year-to-date decline of 11.50%. Nvidia, the ETF's largest holding, has plummeted 30% from its 52-week high of $153.13.

While Nvidia incurred a 20% loss year-to-date, it does show a slight annual gain of 24.75%. Broadcom remains up 42% over the past year but has dropped by 20.50% in the current year. In contrast, Taiwan Semiconductor has lost 14% since the beginning of the year.

The variety of advancements in AI technology has made the semiconductor sector one of the most engaging areas in Wall Street. However, with Chinese companies, notably DeepSeek, making strides in the AI arena, the competitive landscape has intensified. DeepSeek recently claimed that its AI model was developed at a significantly lower cost than traditional models like ChatGPT.

The U.S. government may ban DeepSeek’s chatbot from its devices due to national security risks, a stance echoed by partners such as Italy and Canada.

DeepSeek's rapid ascendancy potentially resulted in a $600 billion drop in Nvidia’s market value in just one day, highlighting the volatility and competitive pressure in the semiconductor market, which led to a regulatory response from U.S. authorities regarding semiconductor exports.

Stock Performance: On Monday, shares of Nvidia fell by 5.03%, while TSM and Broadcom declined by 3.64% and 5.39%, respectively, and Arm Holdings dropped by 7.30%.

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semiconductors, stocks, tariffs, AI, Nvidia