Semiconductor makers are still riding the data center and artificial intelligence waves, but the political waters are getting choppy.

American chip stocks fell Wednesday morning amid the prospect of even tighter restrictions on business with China. Plus, investors are reacquainting themselves with a certain former president’s penchant for off-the-cuff foreign policy pronouncements. 

Not Feeling Too Chipper

The US-China trade war began during Donald Trump’s administration, and President Joe Biden has escalated it, passing multiple sanctions to keep Chinese companies from getting their hands on America’s advanced AI tech.

While chipmaking remains an incredibly lucrative business — global sales reached almost $530 billion in 2023 — the sanctions have hampered companies’ bottom lines. In the first quarter of last year, Nvidia generated roughly 22% of its total revenue in China. This year, that dropped to about 9.5%. And the current White House seems to be planning on more restrictions:

• This week, the Biden administration floated imposing foreign direct product rules (FDPR) on Japan’s Tokyo Electron and the Netherlands’ ASML to curb their business in China if the two countries don’t enhance their own restrictions, sources told Bloomberg. The rule allows the US to put controls on foreign-made products as long as they incorporate even a small amount of American technology.
• As a result, Tokyo Electron’s stock dropped 11% in Japan, and ASML’s US-listed shares fell 12% Wednesday. American chipmakers felt the shock, too: Nvidia dipped 6.6%, Broadcom 8%, Qualcomm 8.6%, and Micron 6%. The blows partially caused indexes to slide, with the S&P 500 dropping 1.4% and the tech-heavy Nasdaq falling 2.7%.

Intel, which is actually one of the worst-performing stocks this year, managed to make it out unscathed; its share price rose about 0.35% by market close Wednesday.

Insurance Policy: As if trade war battles weren’t enough to rattle chip stocks, the industry also felt the effect of campaign trail shenanigans. In an interview with Bloomberg Businessweek, Trump expressed disinterest in providing aid to Taiwan — home to 92% of the world’s advanced chip production — in the event of a Chinese invasion unless payment was involved. “I think Taiwan should pay us for defense. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything,” he said. Shares in the Taiwan Semiconductor Manufacturing Company fell 8% Wednesday. Sounds like Trump’s got a chip on his shoulder. But Silicon Valley seems to love him more today than yesterday. 

If you want to sell handbags for thousands of dollars apiece, your workers better be living la dolce vita.

Italy’s antitrust agency, the Authority for the Guarantee of Competition and the Market (AGCM), announced on Wednesday that it’s opened an investigation into iconic luxury fashion houses Dior and Armani over allegations of worker exploitation.

Made in Chitaly 

Earlier this month, an investigation from prosecutors in Milan led to a series of police raids on warehouses belonging to Dior and Armani suppliers. The raids exposed the unbelievable markups brands were putting on their “made in Italy” items. In Dior’s case, it paid $57 to make handbags that retail for $2,780. That’s a 4,777% markup, for anyone counting. Investigators found that workers, many of whom were Chinese immigrants, were kept in illegal conditions, working long hours in an unsafe and unhygienic environment. 

Armani and Dior each had their supplier units placed under judicial administration, and now the AGCM has picked up the baton, framing the exorbitant markups and workplace conditions as an ESG (environmental, social and governance) violation:

• “In both cases, the companies may have issued untrue statements about their ethics and social responsibility, in particular with regard to working conditions and compliance with the law by their suppliers,” the AGCM said in a statement. It added they may have breached the country’s “consumer code,” making this a consumer rights as well as a workers’ rights issue.
• The companies’ roles as luxury brands is a factor in the agency’s investigation, as it said they “emphasized craftsmanship and quality” while allegedly subjecting workers to low wages and illegally long hours.

An AGCM spokesman told The Daily Upside that if found guilty, the companies would be liable for a €10 million ($11 million) fine. That’s pretty manageable seeing as Dior’s parent company, LVMH, is worth €346 billion ($378 billion), but it has the more sinister potential to deeply tarnish the most valuable thing Dior and Armani possess — their brands.

J’adore Les Jeux: Although Dior might be headed for a regulatory and PR nightmare in Italy, in its home country it’s about to go on a marketing spree. LVMH, the luxury conglomerate that owns Dior, has spent €150 million ($164 million) to be the biggest sponsor at this year’s Olympics in Paris. CEO Bernard Arnault, currently the world’s third-richest person according to the Bloomberg Billionaires Index, is set to kick things off with an exclusive pre-opening ceremony event. 

Rather than let a small business segment wither on the vine, Paris-based Pernod Ricard announced Wednesday that it’s selling most of its wine portfolio to a consortium of Australian wine investors.

That leaves the maker of Absolut vodka, Jameson whiskey, and Havana Club rum in high spirits, so to speak.

The Grape Escape

Pernod will hang on to its champagnes and US and French wine brands, as well as labels in Argentina and China. But a slew of popular wines from Australia, New Zealand, and Spain are set to change metaphorical cellars. Among them are Jacob’s Creek, Church Road, and Campo Viejo, which, pending regulatory approval, will belong to Australian Wine Holdco (AWH).

AWH, whose backers include Bain Capital, said it will combine Pernod’s wine division with Australia’s second-largest wine producer, Accolade Wines, which it also owns. Pernod can focus on its premium spirits, which are also its premium moneymakers, and AWH can focus on winning back one big market:

• Pernod made $13.2 billion in net sales last year, up 10%, and posted a $3.6 billion operating profit, up 11%. But wine sales comprised just 4% of business, down 2% year-over-year.
• AWH is hoping that the end of crippling tariffs on Australian wine imposed by China, which has the biggest alcohol market in the world, will revive a once-nascent market. Chinese wine imports from Australia were an infinitesimal $900,000 last year compared to $1 billion in 2020, the last year before the tariffs — but China’s overall wine market has cooled, as total imports fell to $1.2 billion last year, half of what they were in 2019.

Dry Home Turf: While Pernod is keeping its French wines, the cliché no longer holds that it’s a guaranteed market. Wine consumption in France has fallen nearly 70% since 1960, from roughly 120 liters per capita per year to under 40 liters in 2020, according to Le Monde. Following the success of America’s non-alcoholic craft beer maker Athletic Brewing, maybe it’s time for someone to launch Vinification Athlétique.