Investors are worried about China's domestic supply of chips and manufacturing tools, analysts note
Chip stocks like Micron are falling hard on Tuesday.
Micron Technology, Sandisk and other U.S. chip stocks are extending sharp declines on Tuesday as developments in Asia send ripples overseas.
Shares of Micron $(MU)$ are off 9.6% shortly after Tuesday's open, and they're down 29.5% so far in July. That puts them on track for their worst monthly drop since a 32.6% fall in June 2015.
Sandisk's stock $(SNDK)$ is down 12.4% in morning trading and off 50.9% over the course of July to date. That sets the stock up for its worst monthly decline on record based on data dating going to the company's February 2025 separation from Western Digital.
Shares of storage makers Western Digital $(WDC)$ and Seagate Technology $(STX)$ are off more than 12% in Tuesday action. Dell Technologies' stock $(DELL)$ is down more than 13%.
SK Hynix's American depositary receipts were off 9% after the company's Korea-listed shares lost 14% in overseas trading. Samsung Electronics (KR:005930) saw its stock fall 13% in Korean trading, while shares of Japan's memory leader Kioxia Holdings (JP:285A) tumbled 18% on Tuesday.
"Valuations of memory stocks are somewhat linked, which means when Korean memory stocks go down, that can drag down U.S.-based stocks as well," D.A. Davidson managing director Gil Luria told MarketWatch.
The stock rout follows a strong debut for Chinese memory-chip maker ChangXin Memory Technologies (CN:688825) on its first day of trading in Shanghai on Monday. Furthermore, the Information reported Monday that China is making progress on deep-ultraviolet lithography machines, adding to investor concerns about China's impact on the artificial-intelligence market.
A state-backed semiconductor-equipment company has reportedly started mass production of DUV systems that would ship to chip companies including Semiconductor Manufacturing International Corporation, Hua Hong and CXMT, according to that report.
"Naturally, investors are panicking that we're about to see cheap domestic supply flood a market that's been overheating for months," Nic Puckrin, founder of Coin Bureau and a cross-asset analyst, said in emailed comments.
Luria said in emailed comments that concerns about China's advanced technology developments "may be more relevant to the Korean companies," because most U.S. companies are prohibited from selling to Chinese customers.
DUV machines project microscopic circuit patterns onto silicon wafers that are then etched and processed into memory and mature chips. The technology is also used to print noncritical layers for advanced semiconductors, which use extreme-ultraviolet machines.
Netherlands-based ASML $(ASML)$ dominates the market for both DUV and EUV machines. DUV tools are under strict export restrictions for China, and there is a complete ban on cutting-edge EUV systems being sold to customers there. U.S.-listed shares of ASML were down 4.7% Tuesday morning.
Puckrin added that profit-taking in the chip sector was further "exacerbated by circular-financing fears" after Nvidia (NVDA) said it plans to provide OpenAI with a $250 billion backstop as the AI startup builds out data centers.
"The Chinese competition on top of all this might just be the straw that breaks the camel's back," he said.
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While China's ability to scale its DUV capabilities may be helpful for self-sufficiency in older generations of commodity dynamic random-access memory, it could be less relevant when it comes to the more advanced memory for data-center AI chips that Micron has benefited from, said Joseph DeYonker, CEO of PurePlay ETFs.
"The selloff we are seeing across U.S. chipmakers like Micron is a standard reaction to geopolitical headlines rather than a change in fundamental demand," DeYonker said in emailed comments.
Jefferies analyst Janardan Menon said in a Tuesday note that "while any Chinese litho system today is likely to be significantly inferior to an equivalent ASML system," U.S. efforts to curb access to advanced chip-making equipment are likely driving urgency among Chinese companies to quickly adopt domestic alternatives to keep up in the chip race.
He pointed to the proposed Multilateral Alignment of Technology Controls on Hardware Act, which aims to tighten export controls with international partners on critical semiconductor manufacturing equipment.
Menon said SMIC and CXMT would likely not consider homegrown alternatives to ASML's NXT:1980i DUV machines, which can still be shipped to China under Dutch export licenses, but "the MATCH Act may be providing a reason for them to do so."
-Britney Nguyen