The stock market had given up its gains by Friday afternoon, partly thanks to a report that the Trump administration was considering options to limit U.S. investment in Chinese companies. The tech-heavy Nasdaq was hit the hardest.


Change at 1:50 p.m. EDT

Dow Jones Industrial Average (DJINDICES:^DJI)




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Data source: Yahoo! Finance.

Memory chip maker Micron Technology (NASDAQ:MU) is exposed to China, but the company is also dealing with a deep downturn that showed no signs of ending with its fourth-quarter report. Shares of Alibaba (NYSE:BABA), as well as other Chinese stocks, followed the market lower.

No bottom yet for Micron

Demand for memory chips is picking up, but prices are still plunging as supply continues to overwhelm that demand. Micron reported better-than-expected fourth-quarter results Thursday afternoon, but its guidance made it very clear that the downturn is not over. Micron stock was down 10.5% by 1:50 p.m. EDT on Friday.

Micron's fourth-quarter revenue crashed 42% year over year, and its adjusted earnings per share tumbled by 84%. Both numbers were ahead of analyst expectations, a silver lining in an otherwise bleak report. Micron saw bit volumes for both DRAM and NAND chips rise from the third quarter, but steep price declines decimated the bottom line.

A Micron facility.

Image source: Micron.

Investors were hoping that Micron's guidance would indicate that the worst was over. It did no such thing. The company expects a slight increase in revenue in its fiscal first quarter compared to the fourth quarter, but both gross margin and earnings per share will head lower. The company sees adjusted EPS between $0.39 and $0.53 in the first quarter, down from $0.56 in the fourth quarter. And this guidance includes the impact of an accounting change that will provide a meaningful boost to the bottom line.

Looking ahead, there's a lot of uncertainty facing the memory chip industry. Sales to Huawei could decline further if Micron isn't granted licenses to ship additional products to the Chinese company; global economic weakness and the potential for a recession in the U.S. could put a chill on demand; and the trade war between the U.S. and China certainly isn't helping.

Micron's fortunes will eventually turn, but that might still be a long slog ahead.

Alibaba sinks as White House mulls options

This isn't something you want to see if you own a substantial amount of U.S.-listed Chinese stocks. Bloomberg reported Friday morning that Trump administration officials were discussing ways to limit U.S. portfolio flows into China. Possible options include delisting Chinese stocks from U.S. exchanges and limiting Chinese investments in government pension funds.

It's unclear whether any of this will come to pass, but the report is having a negative effect on Chinese stocks listed on U.S. exchanges. Shares of Alibaba, the largest Chinese stock easily accessible to U.S. investors, were down 5.8% at 1:50 p.m. EDT.

Alibaba is a massive company, valued at around $450 billion. But at least in the short term, any restriction on U.S. investment could send the stock tumbling. Top institutional holders of Alibaba stock include BlackRock, T. Rowe Price, Vanguard, and Invesco. The top five institutional holders own about 16% of outstanding shares.

How this will ultimately play out is anyone's guess, but it adds yet another layer of uncertainty for investors.

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.