Why are AMD, Applied Materials and Lam Research all down today?

Wednesday was a bad day to own shares of Semiconductor - and the reason is China. Late last night, theSouth China Morning Post China's semiconductor chip production surged by 40% in the first quarter, more than twice the global semiconductor sales total, according to data from the Semi Global Semiconductor Manufacturers Association," the report said.

As of 2:10 p.m. EST, leading chipmakerAdvanced Micro Devices （Nasdaq ResonanceStock Code(AMD)'s share price fell 4.5%.Lam Research (NASDAQ resonance code: LRCX)respond in singingApplication Materialsfirms(NASDAQ resonance code: AMAT)They're all semi-conductor chips.fabricationShares of the equipment maker fell 4.3% and 4.5%, respectively.

Why China Matters

Chinese chipmakers are seeing a "surge" in demand for their products from car companies (especially electric cars) and smartphone makers such as Xiaomi. While slowing sales of electric cars and smartphones have made headlines in the West, thePost China's electric car sales grew 29% in the first quarter, smartphone sales grew 17%, and China is making its own chips to supply them," the company said.

Unable to obtain advanced chips and chip manufacturing equipment from the West, and spurred on by local government decrees, Chinese companies are "redoubling their efforts ...... to achieve semiconductor self-reliance." This could be bad news for both Western semiconductor makers and sellers of semiconductor manufacturing equipment, and helps explain why equipment manufacturers areASMLFailed to realize a profit today.

What does this mean for semiconductor stocks?

PostIt called it "an unintended consequence of the U.S. instruc[tion] of exports of advanced chip technology to China," which it said was triggering "a wave of state-sponsored investment that will lead to overproduction and the potential for China to dominate the world's conventional chip production."

This is why investors are worried.

According to S&P Global Market Intelligence, in 2022, 22% of AMD's revenue came from China, but by 2023, that figure has fallen to 15%. Lam Research is in a similar position, with China sales as a percentage of revenue falling from 31.4% to 25.6%, while Applied Materials is in a lesser position, falling from 28.1% to 27.3%. Lam Research is in a similar position, with China sales falling from 31.4% to 25.6% of revenue, while Applied Materials is in a lesser position, falling from 28.1% to 27.3%.

As China begins to take over the semiconductor industry, the revenue of these companies could fall further. And their share prices will fall.

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Rich Smith does not own any of the stocks listed above. the Motley Fool has recommended Advanced Micro Devices, Applied Materials and Lam Research. the Motley Fool has a disclosure policy.

Why are shares of AMD, Applied Materials and Lam Research all down today?