AI-Related Stocks Decline Amid Tariff Concerns and Market Pressures
Shares of artificial intelligence (AI) and related companies, such as Taiwan Semiconductor Manufacturing (NYSE: TSM), Arista Networks (NYSE: ANET), and Vertiv Holdings (NYSE: VRT), took significant hits on Monday. By 3:52 p.m. ET, TSM was down 4.7%, ANET fell 8.3%, and VRT dropped 10.5%. These declines appear closely tied to Nvidia, which also saw a drop of approximately 9.8% at the same time.
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Economic Factors and Market Sentiment Driving Declines
The sharp decline is likely influenced by a combination of broader economic factors, including upcoming tariffs, industry news, and some specific developments affecting TSMC. According to President Trump, tariffs impacting goods from Canada, Mexico, and China will be implemented tomorrow, confirming investor fears.
Concerns surrounding tariffs often revolve around the potential for stagflation, where economic growth stagnates while prices rise. This anxiety was heightened by the release of the ISM Manufacturing Survey for February, which indicated an index reading of 50.3, down from January’s 50.9 and below economists’ expectations of 50.8. Moreover, the prices paid index rose sharply to 62.4 from 55.8, indicating growing inflationary pressures, while the manufacturing employment index took a dip to 47.6 from 50.3.
The survey results paint a concerning picture of the economy, showing employment and new orders decreasing alongside rising prices, a situation that undoubtedly affects all economically sensitive sectors, including semiconductors and infrastructure-related stocks.
Stagflationary fears permeated the market today. Image source: Getty Images.
Additionally, investor sentiment regarding AI stocks has been uneasy lately. Despite Nvidia’s strong recent performance and positive guidance, the market expected more reassurance. TSMC manufactures chips for Nvidia, Vertiv supplies infrastructure for AI data centers, and Arista produces networking equipment utilized in these centers, making them closely linked to Nvidia’s performance.
Recent reports, however, revealed that China might be circumventing U.S. export controls to acquire Nvidia chips. This development raises concerns that Nvidia’s sales numbers could be artificially inflated through rerouted shipments from Singapore to China, facilitated by a network of brokers in Malaysia, Vietnam, and Taiwan. Should these rerouted sales face increased scrutiny, Nvidia’s reported revenues could suffer significantly.
Tariff Announcements and Future Investments in the U.S.
Adding to the uncertainty, TSMC’s CEO C.C. Wei joined Trump at the White House to announce a $100 billion investment in U.S. operations. Although this announcement could be interpreted positively, it raises questions about funding and market needs. The vast investment is primarily aimed at mitigating tariff threats on Taiwan, where the majority of leading-edge chip production occurs.
The sheer size of the proposed investment is daunting for TSMC, and it remains unclear whether the semiconductor industry requires such extensive production capacity in the U.S. soon, particularly considering TSMC’s established operations in Taiwan. Overall, the lack of specific details regarding the investment timeline may leave TSMC investors feeling apprehensive.
Market Volatility Below the Surface
While AI has the potential to revolutionize technology, the semiconductor sector’s status is currently challenged by geopolitical tensions. Investors need to remain composed during volatile market conditions like today’s, while remaining vigilant about economic downturn prospects and geopolitical uncertainties. Despite the turmoil, securing an advantageous position in the AI landscape has never been more important. Companies that effectively deliver value in this sector are likely to see growth in their market value over the medium term; however, today’s downturn could test investors’ nerves.
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Billy Duberstein and/or his clients hold positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Arista Networks, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool follows a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
