Shares of most artificial intelligence (AI)-related semiconductor stocks, including Taiwan Semiconductor Manufacturing (TSM -4.86%), Broadcom (AVGO -4.77%), and Marvell Technology (MRVL -7.55%), were falling hard on Wednesday, down 4.5%, 4.3%, and 6.6%, respectively, as of 12:49 p.m. ET.
Most AI-related hardware stocks, including Nvidia, were down sharply on three bits of news. One, the U.S. added about 50 Chinese companies and 80 total companies to the export “entity list,” which could restrict semiconductor sales globally.
Second, analysts at TD Cowen released a note today saying that Microsoft had canceled some data center projects totaling about 2 gigawatts (GW), which is a significant amount.
Finally, President Donald Trump made comments that suggested he may follow through on more tariffs than investors might have expected at the beginning of the week.
Clamping down on China chip sales
On Wednesday, the Trump administration added about 80 companies to the U.S. “entity list,” which restricts certain chipmakers from selling their products to those companies without getting a specific government permit. The newly added companies are now restricted due to either allegedly aiding China’s military modernization or participating in China’s quantum computing research efforts.
What might have been particularly worrying about today’s restrictions isn’t the 50 Chinese companies added, but rather the 30 companies based outside of China that were also added. These other countries listed included the United Arab Emirates, South Africa, Iran, and Taiwan — although the one Taiwanese company appears to be a subsidiary of Chinese server giant Inspur. Recently, there have been concerns China has been able to smuggle in restricted AI chips through third parties, so it’s not a surprise to see more restrictions come out.
While many Chinese companies were already on the entity list going back years, announcements like these usually spur a sell-off in semiconductor stocks. That’s because the new restrictions could cut off some existing sales to these non-China third parties.
If the new restrictions cause a fall-off in sales growth, that would certainly affect TSMC, which makes Nvidia’s chips and many other associated semiconductors that go into AI systems. While Broadcom and Marvell have ridden custom AI silicon made for cloud giants to new heights in recent years, and those cloud customers won’t be affected, both companies also sell lots of data center networking equipment to all parties.
In their recent annual reports, Broadcom noted about 20% of its revenue came from China last year, while Marvell got a whopping 43% of revenue from China. Both companies also noted shipments to China don’t necessarily mean the end customer is Chinese, but could rather be a U.S. or European company that has assembly, test, or distribution operations in China.
Image source: Getty Images.
Another potentially worrying announcement came from analysts at TD Cowen, which said it believes Microsoft has canceled data center projects totaling 2 GW. That’s a fair amount of capacity, and likely raised concerns the global AI buildout may be slowing or even reversing. A slower build of AI data centers would obviously affect all three stocks listed above.
Adding to the worries, news came over the wires that Trump would be making an announcement regarding auto tariffs today. While the market had thought the administration was relaxing its stance on tariffs earlier this week, the uncertainty could be causing traders to sell ahead of the announcement.
AI chip boom going bust? Not so fast
Certainly, the combination of the China trade restrictions and news of Microsoft canceling data center projects is a toxic brew for AI chip stocks.
However, it’s also not a reason for panic. The Cowen note elaborated Microsoft’s cancellations appear specifically due to abandoning buildouts to support OpenAI training clusters. While Microsoft owns a significant stake in OpenAI, there has been increasing competition in large language models recently, most notably from the low-cost R1 model from Chinese company DeepSeek.
Microsoft said in a statement in response to the report that while it may “strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”
Reading the tea leaves, the cancellations may merely be Microsoft not wanting to spend even more money to support OpenAI specifically, which Microsoft may now doubt will prevail in the AI races. But if that’s the case, OpenAI will probably look to other infrastructure providers such as the recently announced Stargate project announced in collaboration with non-Microsoft tech giants.
Thus, the sell-off in AI chip stocks may be overblown if that’s the case. On that note, the TD Cowen analysts also noted that other large cloud providers had back-filled some of the projects that Microsoft had abandoned.
AI computing still looks set to grow over time. With AI stocks now having highly discounted valuations relative to where they were this past summer, long-term focused investors may want to put together a “buy list” of potential AI winners that have been beaten up.
Billy Duberstein and/or his clients have positions in Broadcom, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
