Why Taiwan Semiconductor Manufacturing Stock Sank Today

Taiwan Semiconductor Manufacturing (NYSE: TSM) stock got hit with significant sell-offs in Wednesday's trading. The semiconductor foundry leader's share price closed out the day down 3.6% after having been off as much as 5.6% in the session. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) fell 2.2% and 3.1% in the session, respectively.

TSMC's valuation moved lower today in conjunction with news of new export restrictions on Nvidia's processors, higher tariffs on China, and cautious commentary from Federal Reserve Chairman Jerome Powell. The stock is now down 23% year to date.

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TSMC stock tumbles in response to multiple bearish catalysts

Nvidia submitted a filing yesterday disclosing a significant new business headwind. The company is now being required to submit for an export license if it wants to sell more of its H20 processors to China, which likely means that the product will be barred from being sold to the country.

TSMC manufactures the chip designs for the processors, and the foundry specialist could see overall demand pressured by new restrictions preventing advanced artificial intelligence (AI) semiconductors from being sold into the Chinese market.

TSMC stock also sold off today in response to news that the U.S.'s tariffs on China will be raised to 245% and commentary from Jerome Powell on the potential impacts of the new export taxes. Powell indicated that the Fed would hold off on cutting interest rates until the potential inflationary impacts of new tariffs became more clear.

What's next for TSMC?

According to a report published by DigiTimes today, TSMC intends to increase the prices on its 4nm chips by 30% in response to surging demand. The news suggests that the company should continue to post very strong sales growth in the near term, but there are still some big risk factors on the horizon. TSMC looks poised to be the leading manufacturer of advanced chips for AI applications for the foreseeable future, but its significance in the escalating tensions between the U.S. and China means the stock comes with outsized geopolitical risk.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.