Why Taiwan Semiconductor Stock Fell Today

Shares of Taiwan Semiconductor (NYSE: TSM), a semiconductor manufacturer, fell today after Reuters reported that the U.S. Commerce Department told the company to stop sending its advanced chips to China, effective immediately.

TSM's stock was down by 3.56% as of 4 p.m. ET.

The U.S. is restricting chips to China

The U.S. government has been cracking down on chipmakers exporting processors to China that are used for artificial intelligence (AI), but some chips have slipped through the cracks. Last month, TSM said one of its processors had somehow ended up in a Huawei AI data center. Huawei is a Chinese company that's on a trade restriction list.

TSM has been communicating regularly with the U.S. government, and today it received a letter from the Commerce Department saying that its 7-nanometer and other advanced chips can't be sent to Chinese companies.

The U.S. and China are competing for AI dominance, and the U.S. is concerned that China could use advanced chips for its military. That fear has led the government to issue restrictions on the types of chips companies sell to China.

TSM isn't the only company that falls under the restrictions; Nvidia and Advanced Micro Devices have also cut back on sending semiconductors to China.

Potential volatility for TSM stock because of China

About 11% of TSM's revenue in the third quarter came from China, so investors probably shouldn't be too concerned that scaling back sales to Chinese companies will hinder the company's growth too much. But they should keep an eye on increasing tensions between the U.S. and China, as any additional geopolitical instability could put pressure on TSM's stock.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.