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3 US chip stocks to watch as China cracks down on Micron

3 US chip stocks to watch as China cracks down on Micron

US chip manufacturer stocks fell in the market pre-open on Monday, May 22, after China announced it prohibited local companies involved in key infrastructure projects from purchasing products from the US chipmaker Micron (NASDAQ: MU), citing national security risks.

The move comes after Micron failed to pass the cybersecurity review conducted by the Cyberspace Administration of China (CAC), the regulator said in a statement

“The review found that Micron’s products have relatively serious cybersecurity risks, which pose significant security risks to China’s critical information infrastructure supply chain and would affect national security.”

– the CAC said in the statement.

The market sentiment had a notable impact on several US-based chipmaker stocks during premarket trading, particularly affecting Micron, Nvidia (NASDAQ: NVDA), and Advanced Micro Devices (NASDAQ: AMD). Recognizing these developments, Finbold undertook an extensive examination of the three chipmaker stocks to evaluate the potential future consequences for these companies.

Micron (NASDAQ: MU)

Naturally, the most noticeable premarket drop was observed in Micron, with shares of the sanctioned US chipmaker tanking more than 5.4% ahead of the market open on Monday.

At press time, Micron’s stock was trading at $64.17 in premarket, compared to its Friday closing price of $68.17. Disregarding today’s drop, Micron gained nearly 10% in the past week and is up almost 35% since the start of the year. 

Micron YTD price data. Source: Finbold

Despite the notable premarket decline, analysts said they saw a limited direct impact on MU shares as most of the chipmaker’s key customers in China are consumer electronics manufacturers. On the other hand, the experts warned that the ban could lead to some Chinese companies scrapping their supply chains of Micron products due to political issues. 

Several weeks ago, the CAC initiated a security review of Micron’s products in response to recently imposed sanctions on China’s chip sector by Washington and its allies. 

The decision represents a major escalation in the long-standing tech dispute between the US and China and marks a significant blow to Micron, which sources over 10% of its revenue from the world’s second-biggest economy. 

Nvidia (NASDAQ: NVDA)

Nvidia’s shares also slipped more than 1.4% in premarket trading Monday and was among the most impacted chip stocks after the CAC’s ban.

At the time of publication, NVDA stood at $308.71, down from its closing price of $312.64 on May 19. 

But the ban imposed by the CAC is unlikely to have a substantial effect on NVDA. This is because NVDA is not solely a chip manufacturer but rather a formidable technology giant that thrives on a diverse range of burgeoning technologies such as artificial intelligence (AI), cloud computing, data analytics, and more.

Nvidia’s stock surged more than 110% this year, fueled by the ongoing AI frenzy. 

Nvidia YTD price data. Source: Finbold

AMD (NASDAQ: AMD)

Another major US-based chipmaker, AMD, also felt the impact of the CAC decision.

The chipmaker’s shares fell more than 1.4% ahead of the market open, trading at $104.24 at press time. This is after AMD’s shares fell nearly 2% to close at $105.82 on May 19. 

However, similar to Nvidia, AMD has been thriving on the AI hype this year. The company’s shares surged over 12% last week, buoyed by investors’ optimism around the chipmaker’s potential to capitalize on the ChatGPT-led sector growth, making a substantial negative impact on its shares unlikely.  

AMD’s shares soared more than 19% in the past month and over 60% year-to-date. 

AMD price data. Source: Finbold

As opposed to US chip stocks, shares of Chinese semiconductor companies largely rose on Monday following the announcement. 

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