Shares of Micron, Super Micro and Big Tech companies are falling. Blame ASML, Trump and the shift to small caps.
Technology stocks, particularly chipmakers, were hit hard on Wednesday as the sector faced a triple whammy: threats of tighter export restrictions on chipmaking equipment, concerns over possible U.S. policy toward Taiwan and a rotation into smaller stocks.
The rally that has seen technology stocks, led by chipmakers, far outpace the rest of the market so far this year appeared set to come to an abrupt halt Wednesday.
Nasdaq Composite Index
The index was down 1.8% in early trading.
The pain was particularly pronounced in the microchip sector.
iShares Expands Technology Software Sector
The exchange-traded fund fell 1.4%,
iShares Semiconductor
The ETF fell 3.8%.
Investors are concerned about a dual political threat to the chip sector. The first is that the Biden administration is threatening to impose tighter restrictions on exports of chip-making equipment to China for companies such as ASML Holding.
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The Dutch company’s American depositary receipts were down 9.6% in early trading, according to Bloomberg, citing people familiar with the matter.
Second, former U.S. President and Republican presidential candidate Donald Trump suggested in an interview with Bloomberg that Taiwan might need to fund its own defense. Taiwan Semiconductor Manufacturing’s American depositary receipts fell 6.8% in early trading.
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Trump’s suggestions indicate that if he wins the US presidential election in November, the limits on US chip companies with respect to China will not be eased and there could even be an intensification of restrictions.
That appears to be putting a damper on enthusiasm for semiconductor stocks.
“A pullback and risk aversion into the July earnings season is good in my view for lowering expectations and very high and euphoric investor positioning/sentiment in the semiconductor sector,” Mizuho Securities analyst Jordan Klein wrote in a research note.
Among U.S. companies, memory chip maker Micron Technology fell 3.7% in morning trading, while server maker Super Micro Computer fell 5.5%. However, the hardest hit companies were chipmaking equipment supplier Applied Materials.
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UCK
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and Lam Research
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which all fell by more than 6%.
A third factor affecting the tech sector has been an apparent rotation toward smaller companies, with
Russell 2000,
representing small-cap stocks, gaining more than 11% over the last five trading days.
“What now? This rotation could play out in an orderly manner and help balance valuations. But if the tech sector continues to sell off, it could lead to forced liquidations by margin players, triggering a deeper decline,” David Morrison, market analyst at Trade Nation, said in a research note published Wednesday.
Write to Adam Clark at adam.clark@barrons.com
News Source : www.barrons.com
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