What happened

Shares of ACM Research (ACMR 2.23%) were tumbling today as the maker of semiconductor cleaning equipment fell in sympathy with Semiconductor Manufacturing International (SMIC.Y) (SMIC), a chipmaker and customer of ACM that may get blacklisted by the U.S. Department of Commerce. The news also triggered an analyst downgrade on ACM Research.

As of 2:53 p.m. EDT, ACM shares were down 28.3%, while SMIC stock had fallen 20.3%.

A chip held between a thumb and forefinger

Image source: Getty Images.

So what

The Trump administration has been discussing the possibility of adding SMIC, considered China's most advanced chip producer, to the Commerce Department's entity list, effectively banning it from importing technology from U.S. companies. The move is the same one that was imposed earlier on Huawei, intensifying the trade war between the two superpowers.

ACM is an American company, but the vast majority of its operations take place in China as the country is a hub of chip manufacturing. Though the company acknowledges that SMIC is one of its customers, it's not listed as one of its three biggest, which make up 74% of its sales. Those include Yangtze Memory Technologies, Shanghai Huali Microelectronics, and SK Hynix.

The news did cause Needham Research to lower its rating from buy to hold as analyst Quinn Bolton said that material exposure to SMIC could be a weakness given the potential blacklist, and added that the sell-off in chip stocks on Shanghai's STAR market is "eroding support" for ACM's IPO of its Shanghai subsidiary on the STAR market.

Now what

Losing nearly a third of its value seems like a steep punishment for ACM on news that is focused on a different company, whose stock didn't even fall by as much. Even with today's decline, ACM shares have more than tripled this year, meaning it's just giving back some recent gains, though the stock was on a downturn before today's news.

While the company's fundamentals still look strong, investors should keep an eye on this issue as an extended crackdown on American technology in China's semiconductor industry would present problems for ACM.