Slowdown And Tariff Talk Grips The Hottest Sector On Wall Street - Semiconductor ETF Now Has A Negative 1-Year Return

On Monday, shares in artificial intelligence chip companies, including Nvidia Corp, Taiwan Semiconductor Manufacturing Co, Broadcom Inc, and Arm Holdings, saw substantial declines.

Recent reports suggest that the U.S. government may consider scrapping subsidies for contract chipmakers, notably impacting firms like Taiwan Semiconductor. President Donald Trump has indicated his desire to eliminate provisions of the U.S. CHIPS Act.

Trump plans to meet with leaders from major technology firms, including HP Inc, Intel Corp, International Business Machines Corp, and Qualcomm. These discussions revolve around the potential for new tariffs that could affect the computer hardware sector.

Increased tariffs could elevate manufacturing costs, particularly in hubs like China, and may disrupt existing supply chains.

The hype surrounding artificial intelligence has escalated since the release of ChatGPT by OpenAI, leading many large tech companies and start-ups to invest heavily in AI technologies.

In addition, the U.S. has imposed several sanctions on the semiconductor industry in China, limiting its access to advanced technologies, particularly in AI, under the guise of national security concerns.

Currently, the VanEck Semiconductor ETF (SMH), which serves as a benchmark for leading semiconductor stocks, has entered negative return territory over the past year. As of this writing, the ETF has recorded a negative annual return of 2.93%.

SMH reached a 52-week high of $283.07 but has since plunged 24.20%. Additionally, year-to-date, SMH is down 11.50%. Its largest holding, Nvidia, has dropped 30% from its 52-week peak of $153.13.

Despite losing 20% year-to-date, Nvidia remains up by 24.75% over the past year. Concurrently, Broadcom shows a 42% increase over the year but is down 20.50% year-to-date. Taiwan Semiconductor has faced a 14% decline since the start of the year.

The semiconductor sector in the U.S. had experienced robust growth fueled by AI excitement. Yet, competition intensified when Chinese company DeepSeek claimed to have developed an AI model at a significantly lower cost compared to traditional models like ChatGPT.

Due to national security risks, the U.S. is considering banning DeepSeek's AI chatbot from government devices, following similar actions taken by countries like Italy and Canada.

DeepSeek's announcement reportedly caused Nvidia to lose approximately $600 billion in market capitalization within a single day. In total, this situation led to a $1 trillion market downturn, prompting the U.S. regulators to impose stricter restrictions on semiconductors.

Stock Performance: On Monday, stock prices reflected the downturn with Nvidia closing down 5.03%, TSMC down 3.64%, Broadcom down 5.39%, and Arm down 7.30%.

Semiconductor, Tariffs, Subsidies