Why Synopsis Stock Fell Today

Shares of Synopsys (NASDAQ: SNPS) fell on Wednesday. The company's stock dropped 10% as of market close. The move down came as the S&P 500 (SNPINDEX: ^GSPC) lost 0.6% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) lost 0.6%.

The chip design company's stock fell after news broke that the Trump administration told the company to stop selling its services to China.

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Chip crackdown

The Bureau of Industry and Security, which operated under the U.S. Commerce Department, sent letters to Synopsis, as well as two other companies, the Financial Times reported Wednesday. The command to end its ties with Chinese chipmakers will be a blow to the company's balance sheet. The company does substantial business in China; 16% of Synopsys's $6.1 billion revenue in 2024 came from the country. In the past, Synopsis had dealings with Huawei, one of China's largest chipmakers and the target of pressure from the Trump administration.

Not the first time

That relationship with Huawei made Synopsis the target of the previous administration as well. The company was under investigation by Biden's Commerce Department, which believed it had passed critical chipmaking software to the Chinese company when it was banned from doing so. The case wasn't officially resolved, and no punitive action was taken.

Image source: Getty Images.

The trade war continues

Although the Chinese-American trade war de-escalated last month, today's move shows things are far from over, especially when dealing with strategically important semiconductors. A spokesperson for China's Ministry of Commerce said this undermines the preliminary trade agreement forged last month and demanded that the White House "correct its mistakes."

I would stay away from Synopsis until more information comes to light.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Synopsys. The Motley Fool has a disclosure policy.