Why Taiwan Semiconductor Manufacturing Stock Is Sinking Today

Taiwan Semiconductor Manufacturing (NYSE: TSM) stock is declining in Monday's trading following potentially significant news about competitive dynamics in the semiconductor industry. The company's share price was down 1.4% as of 3:30 p.m. ET and had been off as much as 2.8% earlier in the session.

TSMC's valuation is moving lower today following news that Chinese tech giant Huawei is testing an artificial intelligence (AI) chip that could rival Nvidia's top semiconductors. Nvidia relies on TSMC to fabricate its semiconductor designs, and both companies occupy key positions in the broader AI hardware and tech race between the U.S. and China.

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TSMC stock slumps on Huawei AI news

Restrictions put in place by the U.S. officially bar Nvidia's high-end processors and advanced chips manufactured by TSMC from being sold into the Chinese market, but Huawei could be poised to give China a major step forward in the AI race with its new Ascend 910D processor.

The Wall Street Journal recently reported that Huawei is teaming up with tech-industry partners to test the new chip. Huawei reportedly expects the performance of the Ascend 910D to exceed that of Nvidia's H100 processor. Meanwhile, Reuters reported that Huawei could be ready to begin shipping its Ascend 910C AI processor to customers in May.

What's next for TSMC?

Huawei's new chip designs are being fabricated by Semiconductor Manufacturing International (SMIC) -- China's largest chip foundry. If SMIC is able to deliver strong production yields on chip designs from Huawei that match or exceed some of Nvidia's powerful AI processors, it would mark a major shakeup in the AI market.

While the H100 chip isn't Nvidia's strongest AI hardware, it's still a very powerful chip, suitable for a wide range of applications. TSMC still retains a significant lead when it comes to advanced chip foundry services, but investors will be watching closely to see if SMIC is catching up.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.