Chip stocks tumbled Thursday despite what looked like good news on the tariff front. The plans President Donald Trump unveiled Wednesday exempted semiconductors. At first blush, the announcement suggests companies will escape substantial levies such as Taiwan's hefty 32% rate, but investors aren't buying the optimism. Nvidia shares shed nearly 7%, bringing its year-to-date decline to almost 24%. Micron cratered 14%, Broadcom was down about 9%, while Taiwan Semiconductor Manufacturing tumbled more than 6%. The market's negative reaction stems from several factors. First, semiconductor-specific tariffs remain on the horizon; they've just been kicked down the road to be addressed separately. Then there are the knock-on effects of the levies already imposed, which could weaken the economy and hurt demand. Morningstar analysts said they are still expecting tariffs of around 10% to be imposed on semiconductors. If this occurs, companies could get creative. Take TSMC , about 70% of its sales come from U.S. customers. The chipmaker could reroute shipments through countries with lower tariffs, but let's be honest, that's just a Band-aid solution. NVDA YTD mountain Nvidia shares year to date More concerning is the potential demand collapse. Most chips don't enter the U.S. as standalone products, but instead arrive inside finished goods like computers and phones. Approximately $200 billion in imported computing equipment and $114 billion in wireless devices now face possible tariff rates near 40%, according to Bernstein's Stacy Rasgon. This threatens to significantly depress consumer purchasing and affect the entire industry. Nvidia faces additional complexity as Chinese technology companies, including Alibaba have reportedly placed billions in orders for Nvidia's H20 AI chips during the first quarter, building inventory ahead of potential restrictions. This will force Nvidia to balance between increasing production for Chinese demand and the risk of excess capacity if export limitations materialize. Complicating matters, the Trump administration hasn't articulated its position on implementing the Biden administration's artificial intelligence diffusion regulations, scheduled to take effect May 15, which will particularly impact Nvidia's export controls. Potential pullbacks on infrastructure projects could further complicate the outlook. According to Bloomberg and TD Cowen reports, Microsoft has suspended or delayed data center projects across multiple locations from Indonesia to the U.K. and various American states. Cloud infrastructure provider CoreWeave ' stock dropped 8% when these developments surfaced. This type of decision raises fundamental questions about AI service demand — a trend that was previously considered the sector's strongest growth driver. Although American manufacturers like Intel and GlobalFoundries might eventually benefit from production returning to domestic facilities, the immediate impact from weakened demand will likely overshadow any advantages from protectionist policies. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today's dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles and Dan Ives, with a special edition of Pro Talks with Tom Lee. You'll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
