ASML stock alarm: ASML shakes up chip stocks with China warning

Dutch giant for chip production equipment ASML (NASDAQ:ASML) and shares of all chipmakers are being dragged down today on a warning about his administration’s new export restrictions on China. Geopolitical tensions are also hurting chip stocks after Republican candidate and former President Donald Trump said Taiwan should pay for U.S. defense of its island.

ASML stock is down 10% at the time of writing, to $959 per share and a market cap of under $400 billion, but so far, shares are still up more than 30% for 2024.

Markets and other living things

Other chip stocks also recorded a decline in premarket trading today. Currently NVIDIA (NASDAQ:NVDA) has fallen by 4% and modern micro devices (NASDAQ:AMD) fell by 7%, while Taiwan Semiconductor (NYSE:TSM) falls by more than 5%. Intel (NASDAQ:INTC), which is staking its future on building new plants in the US, is up 4% at the time of writing.

ASML is known for the production of extreme ultraviolet (EUV) Lithography systems, which are essential for placing conductor tracks at a distance of a few nanometers from each other.

At the centre of the tensions is Taiwan Semiconductor. The company has become the world’s leading chip manufacturer through the use of EUV systems. But China is demanding control over Taiwan and is threatening military action.

The shaping of relations with China and Taiwan is a central issue in the presidential election campaign. Mismanagement could have serious economic consequences. Both the aggressive actions of the Biden administration and reports that Trump could abandon Taiwan are worrying for markets that rely on geopolitical stability.

The Nasdaq Composite material fell 2% today on the news. S&P500 has fallen by 1% and the Dow Jones Industrial Average increased by 0.2%.

Despite increasing tensions, ASML’s second-quarter revenue and profit exceeded analysts’ forecasts. Net bookings for the June quarter were over $6 billion, up 24 percent from the previous year. ASML reported about a quarter of its revenue as profit in the quarter.

What happens next?

The decline in ASML stock and related stocks is a reminder that geopolitics affects all stocks. It is also a reminder that the U.S. presidential election is just months away.

At the time of publication, Dana Blankenhorn held a LONG position in NVDA, TSM and INTC. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing guidelines.

At the time of publication, the responsible editor had no (direct or indirect) positions in the securities mentioned in this article..