Trump's trade-war escalation is a 'major concern' for chipmakers AMD and Nvidia (AMD, NVIDIA)

AMD

AMD and Nvidia fell sharply in pre-market on Monday after President Donald Trump threatened to increase tariffs on $200 million worth of Chinese goods and slap fresh tariffs on $300 billion worth.
Shares of both companies were down nearly 4% as the sector is particularly sensitive to Chinese demand.
Watch AMD and Nvidia trade live.

The semiconductor stocks AMD and Nvidia were under pressure early Monday after President Donald Trump turned up the heat in the US's trade dispute with China. Shares of both companies were down about 4% on the news as the semiconductor industry is particularly sensitive to Chinese demand.

Trump, on Sunday, warned that he will raise the tariffs on $200 billion worth of Chinese goods from 10% to 25%, and slap a fresh 25% tariff on another $325 billion worth of Chinese goods. The new tariffs are set to go in place on Friday.

In response, China has threatened to cancel trade talks scheduled for this week, and is likely looking at ways it can retaliate. One of those areas that China could go after is semiconductors, which are particularly vulnerable to Chinese trade as the country is an important source of demand for the chipmakers.

"China is an important market and it's an important gaming market," said Nvidia President and CEO Jensen Huang on the company's quarterly earnings call.

The sector was hammered in the fourth quarter amid fears a trade war would continue without resolution. AMD and Nvidia both fell about 50% from their Q4 peaks before recovering in 2019. As concerns began to ease, AMD rallied sharply, cutting its drop to 15% from its 2018 fourth-quarter peak. Nvdia is still down 37%.

"A major concern here, the products would be deemed mission-critical and the US would prevent shipments to China, or tax them heavily (a large buyer of GPUs)," noted RBC analyst Mitch Steves.

"We think China trade talks will negatively impact our universe. Most notably, we think GPUs and Semi-cap are most at risk to the downside if tensions continue to rise."

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