Shares of artificial intelligence (AI) and AI-adjacent stocks such as Taiwan Semiconductor Manufacturing (TSM +1.54%), Arista Networks (ANET +2.27%), and Vertiv Holdings (VRT +0.41%) were all down big on Monday, falling 4.7%, 8.3%, and 10.5%, respectively, as of 3:52 p.m. ET.
All of these stocks are tied to the artificial intelligence trade, and their moves are likely related to Nvidia, which was down around 9.8% at the same time.
The large decline is likely due to a mix of broader economic factors around tomorrow's tariffs and their effects, industry-specific news items, and perhaps some company-specific news in the case of TSMC.
NYSE: TSM
Key Data Points
Tariffs, China shipments, and $100 billion in TSMC investments
Front and center in today's sell-off was the tariff threat, specifically on Canada, Mexico, and China. While these tariffs had previously been announced, some investors may have hoped for delays or cancellations. However, President Donald Trump confirmed the tariffs were set to go into effect tomorrow.
The biggest fears over tariffs is that they will cause stagflation, which is a bad combination of slowing economic growth along with higher prices. The fears were augmented today by the ISM Manufacturing Survey from February, which was also released earlier today.
In that survey, the index came in at 50.3, which was lower than the 50.9 reading in January and lower than the 50.8 that economists expected. While the miss on the overall index was a bit worrisome, some of the numbers underneath were even more so. The prices paid index jumped to 62.4 from 55.8 and was much higher than the expected 54.9, indicating inflationary pressures. Meanwhile, the manufacturing employment index fell to 47.6, from 50.3.
The readings basically point to a stagflationary scenario, with falling employment and orders, but also higher prices. Needless to say, this report affected all economically sensitive stocks, which includes semiconductors and infrastructure stocks.
Stagflationary fears permeated the market today. Image source: Getty Images.
In addition, there have been some renewed fears over the AI trade over the past few weeks. While Nvidia still reported strong numbers and guidance last week, the market was perhaps hoping for more reassurance. TSMC makes Nvidia's chips, Vertiv builds a lot of AI data centers around the world, and Arista makes the networking gear that many AI data centers use. So, these three stocks are all tied to Nvidia, in some way.
Already present nerves over the sustainability of Nvidia's growth and the return on AI spend saw another headwind on Sunday. Yesterday, The Wall Street Journal ran a story on how China has apparently been able to procure Nvidia chips by getting around recent U.S. export controls. The story details how a sophisticated network of underground brokers reroutes shipments of the chips from Singapore to China through other shell companies in Malaysia, Vietnam, and Taiwan.
That could also be a negative, as it may indicate Nvidia's sales have been inflated to some degree by these rerouted sales to China, and that if that trade is clamped down, Nvidia may lose that incremental revenue. Furthermore, it may set the stage for more stringent export controls broadly on semiconductors.
Finally, Taiwan Semiconductor Manufacturing CEO C.C. Wei appeared with Trump at the White House today, announcing a $100 billion investment in the U.S. While that may seem like a positive, the announcement is a massive number that doesn't appear to include subsidies. Rather, the announcement was made to head off the threat of tariffs on Taiwan, where basically all production of today's leading-edge chips originate.
The $100 billion figure is absolutely massive and would very expensive to TSMC, and it's unclear if the industry would even need that much capacity in the U.S. anytime soon, when factoring in TSMC's existing footprint in Taiwan. Details were somewhat scarce about the time frame of the investment, but it's possible that large number may also be making TSMC investors nervous.
AI, tariffs, and geopolitics make a volatile brew
Artificial intelligence could be the most disruptive technology to come about in a long time. That's exciting, but the semiconductor trade is also very much tied up right now in geopolitics.
Investors should generally try to keep a cool head on days like today. However, the prospect of an economic downturn and geopolitical instability are certainly things to watch out for. If it's any consolation, it appears that securing AI supremacy going forward is now more critical than ever. The companies that deliver that value should see growth in their value over the medium term, but today's price action was certainly not fun.
