The OpenAI report today hit chipmakers hard and now there is this:
Reuters reports that the US Department of Commerce ordered chip equipment makers, including Applied Materials (AMAT), Lam Research (LRCX), and KLA (KLAC), to halt certain tool shipments to Hua Hong, China’s second-largest chipmaker. Shares came under further modest pressure on the report as they were already down 5-6% today.
The restrictions target tools officials believe could help China make its most advanced chips. Reuters previously revealed Hua Hong had developed advanced manufacturing tech that could produce AI chips, with its contract subsidiary Huali Microelectronics preparing 7-nanometer production at its Shanghai plant — a capability previously limited to SMIC. The Commerce Department letters also block shipments to Huali. The move continues Washington’s policy of safeguarding U.S. leadership in AI chips on national security grounds and arrives just before President Trump’s planned May meeting with Xi Jinping. Suppliers warn they could lose billions in sales, particularly if Chinese fabs under construction get retooled with European or Japanese alternatives.
Context on the Companies
Lam Research, Applied Materials, and KLA are three of the world’s largest semiconductor equipment makers, supplying the etching, deposition, and process-control tools fabs need to manufacture chips. All three have heavy China exposure: Lam drew roughly 35% of recent quarterly revenue from China, Applied Materials around 30%, and KLA also carries meaningful exposure though analysts view it as relatively more insulated. Lam is generally considered the most vulnerable to further restrictions because of that concentration, while KLA’s process-control dominance gives it some cushion. When previous China-related restrictions were announced, AMAT dropped about 4.4%, LRCX fell 4.4%, and KLAC slipped 2.5% — a reasonable template for how this news could pressure shares, with Lam likely the biggest mover.
Background on the US–China Chip War
The conflict began in earnest in October 2022, when the Biden administration imposed sweeping export controls blocking advanced chips and chipmaking equipment from reaching China. Those rules were updated in October 2023 to close loopholes, expanded in December 2024 to cover high-bandwidth memory, and supplemented in January 2026 when the Trump administration imposed a 25% Section 232 tariff on advanced semiconductor imports. The strategic logic: deny China the tools to produce cutting-edge AI chips while the U.S. and allies maintain a generational lead.
China has responded with a massive self-sufficiency push. SMIC is producing 7nm chips for Huawei and entering pilot runs at 5nm, while CXMT is mass-producing DDR5 memory and targeting HBM3. Beijing has also retaliated with its own export controls — restricting gallium, germanium, antimony, and rare earths like terbium and dysprosium — and now requires domestic chipmakers to source 50% of their equipment from Chinese suppliers, threatening an estimated $18 billion in annual U.S. equipment sales. Earlier this month, U.S. lawmakers introduced the bipartisan MATCH Act, which would specifically name Hua Hong, SMIC, Huawei, CXMT, and YMTC as restricted entities and force allies like the Netherlands (home to ASML) to match U.S. controls
