Shares in chip-makers tumble on fears of new trade restrictions.

Shares of semiconductors plummeted on Wednesday after former U.S. President Donald Trump stated that Taiwan should pay for its own defense, and reports indicated that the U.S. is considering stricter restrictions on chip trade with China.

The technology Nasdaq Composite index dropped 2.8% in New York, marking its worst day since December 2022. The S&P 500 index was down 1.4%, putting an end to its three-day winning streak.

“Investors have grown accustomed to continuous positive news from technology stocks, so even the smallest negative news can surprise investors and trigger market panic,” said Dan Coatsworth, an investment analyst at AJ Bell.

Chip stocks led the declines, with Nvidia down 6.6% and AMD down 10.2%. In Europe, ASML had its worst day since 2020 with an 11% loss, following a Bloomberg report that the Biden administration is considering stricter trade restrictions on sales to China for companies, including the Dutch semiconductor equipment manufacturer.

This decline wiped out $496 billion from the market value of semiconductor stocks in the Philadelphia Semiconductor Index, including Nvidia, TSMC, and Intel.

Adding to concerns about the sector, which has been a significant driver of U.S. stock market gains this year, Joe Biden’s presidential rival Donald Trump told Bloomberg that Taiwan, a key player in the global chip manufacturing industry, should pay for its own defense.

Shares of leading industry representative Taiwan Semiconductor Manufacturing Co, listed on the U.S. exchange, fell by 8%.

Ajay Rajadhyaksha, Global Head of Market Research at Barclays, pointed out that the movements reflect heightened investor attention to political risk, increased chances in the past three weeks for Trump to win the U.S. elections, and continued “very aggressive rotational trading” from large to small companies.

“There has been incredible movement in technology over the past year and a half,” he said, “so people are profiting from news.”

While chip stocks with significant Asian exposure experienced sharp declines, stocks of chips with greater production capacity in the U.S. saw significant gains. Shares of GlobalFoundries jumped nearly 7%. Intel briefly surged up to 8%, reaching a three-month high, but lost almost all gains by the end of the trading session.

“Last week, there was already massive rotation in the sector — for example, everything positively oriented towards Trump’s policies, like industrial companies supporting the ‘American revival’ idea, enjoyed a positive upswing,” said Ted Mortonson, technology strategist at Baird.

Enthusiasm surrounding artificial intelligence has led to huge gains in Microsoft and Nvidia stocks this year. However, in recent weeks, some analysts and investors have started expressing concerns about how quickly major technology companies will recoup their investments in AI infrastructure worth tens of billions of dollars.

Christoph Füke, CEO of Netherlands-based ASML, a leading supplier of high-quality chip manufacturing equipment, stated on Wednesday that he is confident the chip industry will recover next year, primarily due to AI, but acknowledged “significant uncertainty” about its pace and form.