Why KLA Stock Was Plummeting This Week

News of a top-level effort to curb the activities of certain makers of high-tech components was putting the hurt on KLA (NASDAQ: KLAC) stock recently. Spooked by the apparent determination to limit such businesses' interaction with a top Asian peer, investors eagerly traded out of KLA. As a result, according to data compiled by S&P Global Market Intelligence, the company's shares were down by nearly 17% week to date as of early Friday morning.

A warning letter from lawmakers

On Wednesday, Bloomberg reported that the House of Representatives' China Select Committee sent an official letter to Commerce Secretary Gina Raimondo urging her to block U.S. manufacturers of semiconductors and related materials from supplying China's Huawei.

In the letter, the committee's Republican chairman, John Moolenaar, and its Democratic ranking member, Raja Krishnamoorthi, wrote, "We must continue in our efforts to deny Huawei, and similar firms, the ability to access U.S. technology."

According to the news agency, the aim of this push is to slow Chinese efforts to develop semiconductor technology that could give its large military an edge. The country's government has made a series of aggressive moves recently in its "backyard," particularly around the island nation it considers its own, Taiwan.

Response apparently forthcoming

Unfortunately for KLA, it is in the supply chain of the U.S. semiconductor industry, and as such operates under recently imposed export restrictions to China -- otherwise an important and significant market for the industry as a whole.

It remains to be seen what action the Department of Commerce, if any, will take on the letter, so investors probably shouldn't trade on the news. An unnamed spokesperson acknowledged receipt of the missive, and said the department would "respond through the appropriate channels."

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.