Why Nvidia stock and these AI chip shares just sank

AI chip stocks fell today following fresh regulatory news.

| More on:
Investor looking at falling ASX share price on computer screen

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Several artificial intelligence (AI) chip stocks saw broad sell-offs in Monday's trading. Nvidia (NASDAQ: NVDA), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Micron (NASDAQ: MU) were among the big names participating in the pullback and were down 1.97%, 3.36%, and 4.31%, respectively, as of market close.

Semiconductor stocks were getting hit with a wave of bearish pressures following news that the U.S. will take new steps to limit the export of advanced chips used for AI. Nvidia, Micron, and TSMC occupy important positions in the AI chip space, and each company saw a significant valuation pullback today.

Nvidia, Micron, and TSMC fall on expanded AI chip regulations

Before the market opened this morning, U.S. officials announced they would be implementing new regulations that will put additional restrictions on the export of AI chips and semiconductor manufacturing equipment. The move is aimed at maintaining technological advantages for the U.S. and its allies and limiting AI progress for China and other adversarial countries.

The new regulations will put a hard cap on the number of AI chips that can be exported to countries including China, Russia, Iran, and North Korea. Meanwhile, close U.S. allies will have unrestricted access to advanced semiconductors and manufacturing equipment for artificial intelligence technologies. The new regulations will take effect 120 days after their initial publication.

Given the news, it's not surprising that Nvidia, Micron, and TSMC saw sell-offs today. While each company operates in a different corner of the semiconductor industry, they're all playing an important role in the design and production of advanced processors that are at the foundations of the AI revolution.

Nvidia is the leading designer of high-performance graphics processing units (GPUs) for AI data centres. While there are other players in the space, the company has a dominant technology and market share lead and stands as the most influential hardware designer in the space. Restrictions were already in place that prevented the company's most advanced processors from being shipped to China, and the new regulations look poised to expand the breadth of the export limitations.

Meanwhile, Micron is a leading producer of memory solutions. The company's high-bandwidth memory (HBM) chips are included in some of Nvidia's most advanced processors, and other memory and storage solutions from the tech specialist are also being used in AI data centers.

Compared to Nvidia and TSMC, Micron could wind up seeing less direct impacts from the new regulations. But while it's possible that the company's memory chips won't be specifically included in the expanding ban list, the business could still wind up facing a tougher growth environment because its chips are included as components in processors from Nvidia and other AI leaders.

TSMC's position amid rising tensions between the U.S. and China could be particularly fraught. TSMC dominates the market when it comes to the manufacturing of advanced AI chips. While there are many companies that design their own semiconductors, very few have the capacity to fabricate their own chips.

Because TSMC offers technological performance and reliability advantages, most AI chip designers choose the company to manufacture their chips. As a Taiwan-based company, TSMC has close geographical proximity to China and has become a centerpiece in the country's increasingly adversarial relationship with the U.S.

What does the U.S.-China dynamic mean for Nvidia, Micron, and TSMC?

Geopolitical dynamics are perhaps the single most important risk factor for AI chip investors. While near-term demand in the space continues to look robust and the long-term growth outlook remains very strong, rising tensions between the U.S. and China could create substantial valuation pressures. Along those lines, developments concerning Taiwan and TSMC are particularly important.

China has long held that Taiwan is part of its territory -- a position that the government of the relatively small island nation disagrees with. With TSMC the world's leading manufacturer of high-performance AI chips, the dispute has taken on added significance.

Leadership in AI has emerged as a key national security and economic issue, and TSMC's dominance when it comes to advanced chip fabrication means that it is one of the world's most important companies. If China were to move to exert greater control over Taiwan and TSMC's chip fabrication plants, it would likely create powerful bearish pressures on AI chip stocks and the market at large. While it's not clear that such a scenario will necessarily play out, geopolitical risks are a key factor that could shape the performance of some of the market's hottest artificial intelligence stocks.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in Micron Technology, Inc. right now?

Before you buy Micron Technology, Inc. shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Micron Technology, Inc. wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

Keith Noonan has positions in Micron Technology. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A man looking at his laptop and thinking.
International Stock News

Nvidia's risk-reward proposition is much less favorable, cacording to 1 Wall Street analyst

One Wall Street analyst is downgrading Nvidia.

Read more »

Warren Buffett
International Stock News

You have an advantage over Warren Buffett. He just told you what it is.

Buffett just told you what that advantage is in his recently published annual letter to shareholders.

Read more »

A man looks surprised as a woman whispers in his ear.
International Stock News

CEO Jensen Huang just uttered 8 words that every Nvidia investor should hear

Nvidia just had another blockbuster quarter and its chief executive had wonderful news for shareholders.

Read more »

A young couple look upset as they use their phones.
International Stock News

Why Tesla shares are falling this week and have given back most of their post-election rally

Tesla continues to struggle after an epic post-election bump.

Read more »

Wife and husband with a laptop on a sofa over the moon at good news.
International Stock News

Jensen Huang just delivered fantastic news for Nvidia investors

Huang talked about the company’s position in a key area -- one that could supercharge growth.

Read more »

A close up picture taken from the side of a man with his head face down on his laptop computer keyboard as though he is in great despair over a mistake or error he has made or bad news he has received.
International Stock News

Nvidia stock just tumbled 8%. Is this a chance to buy?

Nvidia beat lofty expectations and provided strong guidance

Read more »

A fortune teller looks into a crystal ball in an office surrounded by business people.
International Stock News

Where might Nvidia stock be in 10 years?

Nvidia stock has jumped 250x in the past decade as it has been able to capitalise on some red-hot growth…

Read more »

Woman with an amazed expression has her hands and arms out with a laptop in front of her.
International Stock News

Nvidia sees sustained AI growth

Nvidia easily topped Wall Street expectations.

Read more »