What happened

Investors in the semiconductor sector had a hard day on Wednesday. Stocks fell across the sector, and several leading chip names saw their share prices close more than 10% lower -- on very little news of their own. Instead, market makers are extrapolating bad news for these companies based on how a couple of bellwether semiconductor companies are talking about market weakness in the near future.

The biggest drops today include NVIDIA (NASDAQ:NVDA), closing 9.8% lower; Semtech (NASDAQ:SMTC), suffering a 10.7% drop at the closing bell; and Cypress Semiconductor (NASDAQ:CY), taking a 10.2% haircut today.

A loose pile of charred and broken semiconductor chips.

Image source: Getty Images.

So what

The panic started last night, when Texas Instruments (NASDAQ:TXN) reported third-quarter results followed by a similar business update from STMicroelectronics (NYSE:STM) early Wednesday morning. In both cases, these industry giants delivered fine results for the period that passed -- but undermined those numbers with modest guidance for their respective fourth quarters.

STMicro's management team pinned the blame on slow order flows from customers in China, which makes sense against the backdrop of a tariff-based trade war between Washington and Beijing. TI didn't want to make that connection, preferring to talk about a general slowdown after several years of rapid growth across the broad semiconductor market. Since that company's largest customers tend to set up long-term supplier contracts, which account for more than 60% of TI's total revenues in any given quarter, TI isn't particularly worried about short-term tariff troubles.

Taken together, you get a general slowdown with a particular focus on soft Chinese order flows. In their latest earnings reports, Semtech collected 56% of its revenue from the Middle Kingdom, NVIDIA's Chinese sales were 24% of the company's totals, and that ratio stopped at 40% for Cypress. It's hard to blame investors in these companies for taking the China-based worries to heart in a big way.

Now what

All of that being said, it might be a bit early to draw negative conclusions about NVIDIA, Semtech, and Cypress from the tea leaves that Texas Instruments and STMicroelectronics cast. These companies do serve similar customer types and end markets, but the devil is in the details. Semtech is the closest match for Texas Instruments among today's biggest losers, but the others come with more unique business profiles. Cypress leans more on the smartphone market than the other names here. NVIDIA is big in consumer computing, with a hopeful eye on the budding automotive computing segment.

It's worth noting that STMicro shares also closed 13.7% lower while Texas Instruments suffered a smaller 8.2% drop. Those were the tickers with actual news to report. Cypress, Semtech, and NVIDIA endured heavier losses than TI by no fault of their own.

You don't have to wait long for the other shoe to drop -- or not -- in the case of Cypress Semiconductor. That earnings report is due on Thursday evening. NVIDIA's next report won't drop until Nov. 15, probably right next to Semtech's update. We'll know more after all of that. Until then, I'm not 100% convinced that the carefully worded slowdown warnings from two chip companies will spoil the entire sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.